Washington/ Seoul: The Federal Reserve said the recession in the United States was easing, offering some hope of a pick-up in the global economy, and South Korea said its economy would shrink by less than previously forecast.
Asian stock markets rose for a second day on Thursday, buoyed by signs the Fed was becoming less concerned about the state of the world’s biggest economy and an unexpected jump in US durable goods orders last month. But the fragility of the nascent recovery was underlined by Toyota Motor Corp, the world’s No.1 car maker, which predicted tough times would continue for another two years.
On Wednesday, the Organisation for Economic Cooperation and Development (OECD)said the economic outlook had improved for the first time in two years, but also warned that rising unemployment and ballooning deficits could knock a weak recovery off track.
The Fed kept interest rates near zero on Wednesday and signalled less concern on deflation, considered a threat to the economy because a pattern of falling prices causes consumers and businesses to delay purchases, dragging the economy down further.
The US central bank also stuck to, but did not increase, its huge programme of buying government and mortgage debt, which is designed to keep borrowing costs low and boost recovery.
“Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing,” the Fed said in its policy statement at the end of a two-day meeting.
“Conditions in financial markets have generally improved in recent months.” US weekly jobless claims data, due at 1230 GMT on Thursday, will give another read-out on the economy. Last week saw a surprise decline in the number of people claiming benefits.
A crisis that began nearly two years ago when a US housing boom turned sour has pitched the global economy into its worst downturn in six decades, with export-focused economies, many in Asia, particularly hard-hit by collapsing trade.
One of those countries, South Korea, upgraded its economic forecast for 2009 on Thursday, saying Asia’s fourth largest economy was now expected to contract 1.5%, compared with a previous forecast of 2%. That would still mark the worst performance since 1998, when the economy contracted 6.9% as the Asian financial crisis pushed South Korea to the brink of sovereign insolvency.
Share markets rose around the region, with Seoul stocks and Japan’s Nikkei both up more than 2%. Tumbling exports have driven Japan’s economy into its deepest recession since World War Two, forcing companies such as Toyota and Sony Corp to slash production and cut jobs.
Facing a second straight year of record losses for the current year to March 2010, Toyota aims to cut costs from its already lean operations so it can be profitable using just 70% of its factory capacity.
“We want to do everything possible to avoid a third consecutive year of losses,” newly appointed President Akio Toyota told a news conference, at which he forecast two more tough years for the auto industry.
Mixed economic indicators have been keeping global investors guessing about the markets’ direction. Data on Wednesday showed new orders for long-lasting US manufactured goods rose unexpectedly by 1.8% in May, surprising analysts who had expected a fall of 0.6%.
A separate report showed that US mortgage applications climbed last week from a seven-month low, adding to signs that the three-year housing market slump may be abating.
But another set of US data showed sales of new single-family homes slipped in May, underscoring that conditions in the hard-hit housing market were still fragile.
The OECD said that the global slowdown was nearing bottom. Its 30-member countries should return to modest economic growth of 0.7% next year, a big reversal from a 4.1% fall this year, and a previous forecast for a 0.1% contraction.
“This is the first time since 2007 that we have revised up the projection,” OECD chief economist Jorgen Elmeskov said after the release of the Paris-based think-tank’s economic outlook..
“The bad news is that the projection still implies that we are only nearing the bottom now, and the recovery that follows is going to be a very slow one, probably a fragile one,” he said.
The International Monetary Fund said Ireland, where the downturn has been particularly sharp because of a burgeoning financial sector and long housing boom, faced a slow and painful recovery and estimated bank losses could reach €35 billion ($48.75 billion).
In an annual health-check the IMF forecast the Irish economy, dubbed the Celtic Tiger during its rapid growth of the late 1990s, would contract by 13.5% between 2008 and 2010 and only start to grow by around 1% in 2011.