Euro zone and U.S. business surveys are expected to confirm on Thursday that the world's worst recession in six decades is easing, but that it will take some time before the global economy will start growing again.
The latest reminder that the path to a recovery will be long and rough came from the U.S. Federal Reserve, which cut its economic forecasts for the next three years while noting some modest improvements in the U.S. economy last month.
The bleaker outlook knocked stocks off from six-month highs scaled on Wednesday, even as Treasury Secretary Timothy Geithner offered fresh assurances that the U.S. financial system was healing.
The minutes of the Fed's April meeting also revealed that the central bank considered buying more securities to help recovery. The move would effectively mean printing more dollars and the news pushed the U.S. currency to five month lows.
Stocks in Asia dipped, with Tokyo shares leading the decline with a 0.9 percent drop as the dollar's retreat pressured exporters. Declines elsewhere in the region broadly matched declines in U.S. stocks on Wednesday, and European share markets also opened lower.
Recent weakness in some U.S. indicators, including data on the housing market at the epicentre of the world financial crisis, cast the spotlight on this week's euro zone flash PMI figures and the Philadelphia Fed's business activity index.
The surveys, due later on Thursday, are expected to show some upward momentum, offering markets encouragement after evidence of how horrible the start of the year was for the world's major economies and how long it may take to crawl back from the slump.
An early estimate of the euro zone PMI index for May, due shortly before 0800 GMT, is expected to rise to 42.3 from 41.1 points, showing a slowing contraction on overall business activity. The Fed's survey of activity in the U.S. mid-Atlantic region is also expected to show that manufacturing contraction slowed in May compared with the previous month.
HIGH UNEMPLOYMENT
The Fed cut its 2009 forecast to project a 1.3-2.0 percent contraction, deeper than the 0.5-1.3 percent decline seen in January.
It expects the world's biggest economy to return to 2-3 percent growth next year. But its new unemployment forecast shows the jobless rate will stay above 9 percent until 2011, suggesting it will take a long time before the recovery will fell like one.
In contrast, Japan's central bank and government are expected to present the current state of the world's No. 2 economy and its prospects is slightly better light.
Analysts expect the Bank of Japan to use a more positive language in the economic assesment at the end of its monthly meeting on Friday, just days after data showed the economy shrank by a record 4 percent in the first quarter. Japanese media also reported the government will follow suit in its monthly economic report on Monday.
BOTTOMING OUT
Singapore, a small Southeast Asian economy heavily exposed to international trade and thus seen as a good proxy for global economic trends, reported a 10 annual contraction in its revised first quarter data on Thursday.
The drop was smaller than shown in preliminary data and, in tune with guarded optimism of officials around the world, the city-state's trade ministry said it saw some signs of bottoming out in the data.
Taiwan, another Asian economy whose fortunes are inseparable from those of the United States, Europe and China, is set to report its first quarter economic output plunged around 10 percent from a year earlier, sources told Reuters ahead of the release of official data.
One source of hope for economies across Asia have been signs that China, the world's third-largest economy, was riding out of its soft patch early this year with the help of Beijing's $585 billion stimulus package.
Chinese officials have been expressing growing confidence that the official 8 percent growth target for this year was within reach with the help of a surge in bank lending combined with government spending splurge.
But analysts at two international banks said on Thursday there were some signs that China's recovery has recently lost some steam.
Fitch Ratings also warned about the side effects of the credit boom, saying Chinese banks risk pouring money into investment projects with dubious earnings prospects as they rush to make up for shrinking margins by boosting loan volumes.
