The world's richest nations will put recession behind them later this year, but when growth returns it will be sluggish, according to Reuters polls that pose a challenge to the vigorous rally in world stock markets.
Surveys of more than 200 economists across Europe, Japan and the United States show that as a group at least they are still reluctant to validate the market's bet on a stronger economic recovery in the second half of this year.
That could be a function of how badly they underestimated the severity of the recession, although many say that much of the optimism thus far has been based on sentiment and business surveys rather than official data.
While it is clear that the Chinese economy is set to perform well this year and into next, the consensus outlook for 2010 has hardly changed for the U.S., the euro area and Britain over the past month, nor has the quarterly profile in expected growth.
What is most striking about the survey results is how little the consensus and the range of forecasts have changed despite the stock market having leapt up by a third since early March.
Remember that the celebration continues to be all about smaller contractions rather than about positive growth so the output gaps continue to increase, noted Erik Nielsen, chief European economist at Goldman Sachs.
British economic figures have been showing more signs of the recession having already found its trough than the continent -- partly thanks to the Bank of England's aggressive interest rate cuts and a collapse in the pound that has cushioned exports.
But while consensus forecasts for the UK show a marginally better second half than envisaged a month ago, they are barely showing any growth at all for 2010 as a whole.
The BoE issued a somber set of forecasts earlier on Wednesday implying a weaker near-term growth outlook and interest rates on hold well into the future, news which sent the pound tumbling sharply.
The outlook for the 16-member euro area has dimmed for this year, thanks mainly to a more pessimistic outlook for the three months just gone by. But the view for 2010 again is unaltered from last month's poll, predicting just 0.4 percent growth.
U.S. LEADING AGAIN
Economists say the U.S. has put the worst of recession behind it now that fiscal and monetary stimulus measures are filtering through. But if the consensus view is to be believed, the eventual return to growth will be unspectacular.
The recovery will come slowly and likely will be tepid when it arrives, said Richard Berner, co-head of global economics at Morgan Stanley, who is forecasting contraction straight through the end of the third quarter of this year.
The vast majority of U.S. economists who answered the question said the trough in economic activity had already passed, even though most expect unemployment to keep rising well through next year, likely topping 10 percent.
Given that backdrop, and with low inflation, the Federal Reserve will in all likelihood keep interest rates on hold at least until the middle of next year, as will the European Central Bank, the Bank of England and the Bank of Japan.
What remains up for debate is the speed and the durability of growth when it comes back.
We wonder how fast the economy can grow in an environment where credit remains tight, private wage growth is negative and, despite the rally in stocks, household net wealth is trillions of dollars lower than last year at this time, noted Joseph LaVorgna, chief U.S. economist at Deutsche Bank.
Crucial to any call for recovery in the U.S. is how much pent-up consumer demand there is in the economy as well as how companies manage their warehouses after running off stockpiles of goods at a breakneck pace at the start of the year.
While the rate of inventory decline could slow this quarter and beyond, we may not actually see outright inventory building for another few quarters. If so, then the recession could extend a bit longer than consensus expectations, said LaVorgna. Japan's outlook was the only one that showed a material improvement compared with a month ago, but that is partly because its economic collapse toward the end of last year -- thanks to retreating demand for its exports -- was so severe.
The question now is whether the recovery can be sustained, said Naoki Iizuka, senior economist at Mizuho Securities.