Major European industrial groups reported lower profits on Thursday despite some stabilisation due to cost-cutting and government help, and said they did not expect a quick economic recovery.
Updates from engineering, oil, chemical and car groups revealed few signs the economy was improving and executives spoke of tough conditions with little light in sight.
At best, some sectors appeared to have passed through an earnings trough.
"The only conclusion you can draw from the earnings season so far is that the recovery people were expecting by the fourth quarter is looking elusive," said Philippe Gijsels, strategist at Fortis in Brussels.
German engineering company Siemens, a bellwether for the region's leading economy, suffered a steep decline in earnings and analysts predicted worse to come.
"We are not banking on a quick recovery," Royal Dutch Shell chief executive Peter Voser said after profits at the oil group slumped 70 percent.
Analysts said the promise of an early economic rebound, which has driven a rise in global stock prices over the past four months, was beginning to fade in most sectors.
Facing the worst recession since World War Two, countries across the region have spent billions and central banks have cut interest rates in attempts to get credit flowing and spark a recovery in consumer spending.
Banks burned by a credit crisis that had its roots in profligate lending have turned extra-cautious, small businesses have brought down the shutters and the number of jobless continues to grow.
German unemployment unexpectedly fell in July but would have risen sharply if one-off effects were ignored, data showed. U.S. jobless claims for the latest week rose more than expected.
"Until we have a real recovery in employment there is going to be no recovery in the economy, given that 70 percent of the economy is consumer-driven," said Gijsels.
Euro zone economic sentiment improved in July, data showed, signalling the economy is bottoming out but not yet growing. GDP in the region fell 2.5 percent in the first quarter compared with the fourth quarter of 2008, and 4.9 percent year-on-year.
Europe's second quarter earnings season gathered pace with its biggest day so far, and companies promised investors they would slash costs as they struggle to maintain dividend payouts in the face of sluggish sales.
BASF, the world's biggest chemicals group, posted sharply lower profit and said that it might cut its dividend. It is a good barometer of consumer demand because it supplies a range of industries from electronics to construction.
A slump seemed to be bottoming out in North America and China was recovering but it said "a sustained upturn is not in sight".
Profit at carmaker Volkswagen tumbled while rival Renault posted a net loss for the first half.
The International Air Transport Association (IATA) said it could take years for air freight — a leading indicator for the health of world trade — to return to 2008 levels.
"There are no signs of an early economic recovery. The outlook looks bleak," it said in a statement.
DOUBLE-EDGED SWORD
Across the world, companies have managed to squeeze out profits by taking the axe to costs, cutting jobs and closing plants.
In Japan, two second-tier automakers, Mazda and Mitsubishi Motors, posted losses for a third straight quarter but kept annual forecasts unchanged, relying on cost cuts to offset weak demand.
Results from major telecom groups were among the bright spots in Europe. They reported better-than-expected first half results helped by cost-cutting programmes.
Fortis' Gijsels said cost cuts were playing a disproportionate role in company earnings.
"It's all coming from cost-cutting on a low revenue base. But cost-cutting is actually adding to losses in revenue across the economy — if you cut costs, you're cutting somebody else's revenues," he said.
Through all the uncertainty, global equities have continued to rise, driven in part by investor relief that there are signs of stabilisation. Analysts also say a fear of being left behind when a recovery starts is driving a push into shares of cyclical companies.
The MSCI index of global shares was up 0.5 percent by mid-morning. It has gained more than 50 percent since early March on hopes of a recovery, better macro-economic data and a belief that central banks will be supportive.
In fact, leading investors have taken their holdings of stocks back up to levels last year just before the the collapse of Lehman Brothers, a series of Reuters polls showed.
