Who will lead the world economy out of recession?

By Emily Kaiser - Analysis

WASHINGTON (Reuters) - The United States and China hold the best hope for leading a global economic recovery, yet they may lack sufficient strength to firmly pull the world out of recession.

President Barack Obama warned fellow world leaders at the Group of 20 summit in London that they should not count on "voracious" U.S. consumers generating the level of demand that helped drive eight years of strong global economic growth.

But without an obvious growth engine to replace flagging American consumption, the global economy appears headed for a prolonged slump followed by only a tepid rebound.

"It is going to be a difficult paradox for the world, with the economy at the epicenter of the crisis -- the United States -- still being seen as the savior of the world at large," said Eswar Prasad, a senior fellow at the Brookings Institution.

Before the United States can hope to save the world, it must address its own obvious problems of the still-raging financial turmoil and the perilous state of banks.

But doing so will not fully regenerate the U.S. consumer, who has been the world's best customer for everything from socks to 60-inch plasma televisions in recent years.

Even with the U.S. Federal Reserve and the federal government committing trillions of dollars to revive the economy, Americans lost $11.2 trillion in wealth last year and are in no mood to go on a big spending spree.

China faces a similar situation. While it can potentially play an important role in recovery, its nervous consumers are more prone to save than spend, which does little to lift global growth, Prasad said.