Paris: Fresh and deep recession data is doing little to dampen “green shoots” talk that the global crisis is beginning to bottom out, although analysts are forecasting a long, bumpy journey to recovery.
Economists have seen light on the horizon in recent weeks and investors on Friday appeared to shrug off the latest backward-looking economic data as observers weighed how long it might be before a recovery really takes off.
The head of the International Monetary Fund (IMF) Dominique Strauss-Kahn told reporters on Friday that he expected the global economy to recover in the first half of 2010 and forecast the “beginning of the turning point” late this year.
IMF this week forecast a “gradual” recovery in Europe next year with firm financial reforms. For Asia, top IMF official Takatoshi Kato said the recession promised to be “deeper and more prolonged” than in previous cycles.
Figures released on Friday showed Europe lurched deeper into its rut in the first quarter of 2009 and concerns rose over the threat of deflation in Japan, due to the biggest world downturn since World War II.
Analysts at the consultancy Capital Economics said growing confidence “could feed back into a virtuous circle of improving sentiment, rising stock markets and a stronger recovery.”
Japanese central bank data meanwhile raised concern that the world’s No. 2 economy may be facing a repetition of its 1990s deflationary spiral when falling prices led to weak consumer spending.
Some economists have said over recent weeks the world is entering a twilight zone of conflicting signs, with key indicators lighting the way to a recovery even as grim economic data and job cuts continue.
IMF suggested in a report this week that the European Central Bank had scope to cut interest rates even further from their current record lows and urged tough measures to shore up Europe’s financial sector.
“Even assuming more forceful policy actions, the downturn is likely to last until early 2010,” IMF said. “The subsequent recovery is expected to be gradual.”