G8 leaders, from left, European Council President Herman Van Rompuy, Japanese Prime Minister Naoto Kan, Italian Prime Minister Silvio Berlusconi, Canadian Prime Minister Stephen Harper, German Chancellor Angela Merkel, French President Nicolas Sarkozy, US President Barack Obama and European Commission President Jose Manuel Barroso are seen during a round table meeting at the G8 summit in Deauville, France, Thursday, May 26, 2011 (Photo: AP)

WASHINGTON DC, United States

From the United States to Europe and even to booming China, the global economy is showing signs of strain.

Most major economies are expected to keep growing. But evidence is mounting that many around the world are struggling to expand as fast as they did last year.

European governments are struggling with debts and squeezed budgets. Britain’s economy scarcely grew at the start of the year. Even Europe’s strongest economy, Germany, may face a slowdown.

High unemployment, depressed real estate and still-high oil prices are slowing the US economy, which grew at a scant 1.8 per cent annual rate from January through March. And after its earthquake and nuclear crisis, Japan has sunk back into a recession.

In China, interest-rate hikes designed to reduce inflation are slowing growth.

Overall, the world economy will likely grow just 3.5 per cent this year, down from 4.1 per cent in 2010, according to the research firm IHS Global Insight. IHS has cut that forecast from 3.8 per cent.

As leaders of the Group of Eight rich democracies met in Paris last week, slowing global growth was on an agenda already packed with concerns about instability in the Middle East, Greece’s debt crisis and who will be the next head of the International Monetary Fund. It wasn’t a priority item at the meeting, though.

“The eurozone is a big mess, and the Europeans don’t want to talk about it,” said Simon Johnson, a former chief economist of the IMF.

The most serious such problems exist in Greece, Spain, Portugal and Ireland, which are overwhelmed with debts run up during the financial crisis and the recession that followed.

Financial markets have been signaling concerns about a worldwide slowdown. The Dow Jones industrial average has shed about 400 points, or 3.2 per cent, in May. Stocks have slid three per cent or more in the same month in Japan, Britain and Hong Kong.

IHS chief economist Nariman Behravesh said “three headwinds are hitting the global economy at the same time”:

— High commodities prices. Despite a recent dip, oil prices are still up 50 per cent over the past year. Those prices have squeezed household budgets in the United States and other rich countries and held back consumer spending. Rising food prices are hurting the middle class and the poor around the world.

— Government budget cuts. Many European countries had to slash spending after the financial crisis swelled their budget deficits. Britain last year cut spending and raised taxes, choking the economy. Britain’s economy eked out just 0.5 per cent growth in the January-March quarter after shrinking from October through December last year.

— Japan’s earthquake and nuclear crisis. After factory production was disrupted, the Japanese economy shrank at a 3.7 per cent annual pace in the first quarter. It will likely contract an additional 3.7 per cent in the April-June quarter, according to the Organisation for Economic Cooperation and Development.

“The highest degree of uncertainty lies in the effects of the disaster on Japan’s economy,” Bank of Japan Gov Masaaki Shirakawa said in a speech last week in Tokyo.

Economists do expect Japan’s economy to rebound in the second half of the year. Reopened factories and reconstruction projects in the quake zone should create jobs.

The US economy is also expected to accelerate in the next several months. More hiring will likely encourage consumers to spend more. Companies are expected to dip into profits to expand. And banks, having shed bad loans from financial crisis, will likely lend more to businesses and consumers.

Still, economists are increasingly worried about China. Four interest rate hikes since October have yet to do much to cool China’s inflation, which is running above five per cent. Goldman Sachs has cut its forecast for Chinese growth to 9.4 per cent from 10 per cent this year and to 9.2 per cent from 9.5 per cent in 2012.

By raising rates and taking other steps to tighten bank lending, Beijing wants to slow growth to seven per cent this year to stem inflation. Some worry that Beijing’s controls, combined with power shortages in some manufacturing areas, are steering China toward an economic disaster. But most analysts expect China to tame inflation without wrecking the economy.

Other booming countries, such as Brazil and Turkey, are also trying to slow growth to control rising inflation.

U.S. exporters had been counting on robust purchases in the developing world to offset lackluster growth at home. Those expectations might need to be scaled back.

“A hard landing for the emerging markets could significantly set back the world economic recovery,” said Eswar Prasad, professor of trade policy at Cornell University. “They have been the key drivers of global growth in the aftermath of the financial crisis.”

Michael Mussa, senior fellow at the Peterson Institute for International Economics, worried that rising rates will slow global growth well into 2012.

“If there’s a worry, it’s what might happen next year,” Mussa said.