Japanese machinery orders unexpectedly fell in April and French industrial output dropped too, data showed on Wednesday, suggesting world economies have more choppy waters to navigate before heading into recovery.
Global economic data has improved in recent weeks from a nadir in March, partly spurred by trillions of dollars of government stimulus, and stock markets have rallied on hopes an end might be in sight to the deepest recession in six decades.
However, policy makers have suggested risks remain and any recovery will be take hold only slowly. Data on Wednesday showed a 5.4 percent fall in core orders of Japanese factory equipment in April, while French industrial output fell more than expected that month, following much worse-than-expected German output figures on Tuesday.
Even so, many economists believe the worst is over.
"It seems that we are really hitting rock bottom now and there doesn't seem to be much further to go," said Alexander Law, chief economist at consultancy Xerfi in Paris. "We're looking towards a technical recovery in the third quarter and we're really in the last drags of this recession," he added.
Backing recovery hopes, two Chinese newspapers reported that factory output in China, an engine of world growth in recent years, rose in May at the fastest pace since last September while the euro zone's third biggest economy, Italy, reported that its industrial output grew again in April after 11 consecutive monthly declines.
Asian shares rose on Wednesday, led by resource companies on a rally in oil and metals prices. Tokyo's Nikkei climbed 2.1 percent to its highest close in eight months, while MSCI's index of shares elsewhere in Asia gained 2.7 percent.
"Those that sold heavily on the view that the global economy was falling into an abyss are now buying back, as more people think that it hit a bottom in January-March," said Kenichi Hirano, operating officer at Tachibana Securities in Tokyo.
In Europe, stocks rose in early trade on Wednesday, with banks leading on news that top U.S. banks have been cleared to repay state aid and oil majors boosted by a jump in crude oil above $71 a barrel.
EXPORTS LEAD IN JAPAN
While analysts said the Japanese data suggested some hesitation among firms over the sustainability of a pick-up in exports and industrial output, they also said low corporate profitability and capacity utilisation was crimping machinery orders.
"We are starting to see signs of the Japanese economy recovering, and exports are leading this," said Takahide Kiuchi, chief economist at Nomura Securities. "But that doesn't mean domestic demand has recovered, especially capital spending."
Japan's export-focused economy has been hit particularly hard by a downturn that devastated global trade, forcing leading firms such as Toyota Motor Corp and Sony Corp to cut jobs and slash production.
On Wednesday, the Nikkei business daily said falling prices of televisions and other products were expected to depress operating profits at Sony and rival Panasonic Corp by a total of about 1 trillion yen ($10.20 billion).
In Europe, the fall in French industrial output was led by steep drops in energy and refining activities with manufacturing also slowing. National statistics office INSEE said industrial output fell by 1.4 percent in April from the previous month.
It is still unclear if signs of improvement in some markets point to the return of sustained consumer demand or if companies are merely replenishing depleted inventories. A solid rebound in demand is needed to ensure a global recovery.
European Central Bank policymaker Guy Quaden of Belgium said the ECB would only unwind its support when there was significant improvement in the economy — apparently taking a different line from fellow policymaker Juergen Stark, who has said the ECB will withdraw when recovery starts.
Analysts expect the ECB to keep interest rates on hold throughout 2010 as the 16-nation region's economy edges slowly out of recession.
"Public sector stimulus (packages) must always be temporary … when the situation stabilises then you need balance so that you don't end up in a debt spiral, that's the most important thing," Council member Erkki Liikanen of Finland said.
"I am much more worried about the long-term perspective than just one year," he said.
CHINESE BOOST
Data from China's National Bureau of Statistics showed consumer prices fell 1.4 percent in the year to May, marking the fourth consecutive month of deflation.
Producer prices fell 7.2 percent, with the rate of decline accelerating from a 6.6 percent drop in the 12 months to April.
Most economists have played down worries of deflation and they could be swept aside later in the week if the newspaper reports that China's May industrial output rose by a forecast-beating 8.9 percent from a year earlier prove accurate.
"If this is true, it certainly would prove to be quite a boost for the market," said Hideyuki Ishiguro of the investment advisory department at Okasan Securities in Tokyo.
Finance ministers from the Group of Eight top industrial countries meet in Lecce, Italy, on Friday and Saturday to gauge the success of efforts to stimulate economies and stabilise financial systems.
