WITH the prospect of stiffer sanctions against Russia rattling confidence in Europe, investors will be looking to the United States and China to underpin the global economy.

    U.S. gross domestic product (GDP) reading tomorrow and jobs data Friday will help markets judge the strength of the economy’s rebound and the likely speed of the U.S. Federal Reserve’s return to more conventional monetary policy. The Fed meets today and tomorrow.

    “The U.S.-China story is looking more encouraging,” said James Knightley, an economist with ING. “With the European Central Bank’s moves, that should allow the euro zone economy to swing upwards but with a good six- to 12-month lag.”

    In Europe, the downing of a Malaysia Airlines airliner over eastern Ukraine has left countries such as Germany with little choice but to change their long-passive stance and impose tougher sanctions on Moscow over the role of pro-Russian separatists.

    Globally, such sanctions would bite hardest in Europe, where Russia does most trade, compounding economic problems not only for Russia but throughout the region.

    The International Monetary Fund has already flagged the “chilling effect” on investment in Russia of sanctions as it pared back its forecast for global economic growth last week.

    Confidence amongst businesses in Germany, which accounts for more than one-quarter of all exports across the European Union, has dipped further since the plane crash.

    “The situation is very dangerous,” said Michael Heise, chief economist of Allianz, one of the globe’s largest fund investors.

    “An escalation carries large risks for the economy,” he said, cautioning in particular of the knock to confidence. “There is a big risk from further sanctions although one has to accept that clear [diplomatic] signals are needed.”(SD-Agencies)