The head of the International Monetary Fund (IMF) Dominique Strauss-Kahn told reporters on Friday that he expected the global economy to recover in the first half of 2010 and forecast the “beginning of the turning point” late this year.

The IMF forecast a “gradual” recovery in Europe next year if firm financial reforms are made. For Asia, top IMF official Takatoshi Kato said the recession promised to be “deeper and more prolonged” than in previous cycles.

Figures released on Friday showed Europe lurched deeper into its rut in the first quarter of 2009 and concerns rose over the threat of deflation in Japan, due to the biggest world downturn since World War II.

Data showed that France, Austria and Romania officially entered recession and Germany logged its worst quarter on record. The 16-nation eurozone shrank by a record 2.5 percent, an official EU estimate showed.

“This should mark the nadir in the eurozone’s recession as there are mounting signs that the rate of contraction is now moderating,” IHS Global Insight economist Howard Archer said.

“Nevertheless, we suspect that actual growth remains some way away.”

Europe’s main stock markets rose in the immediate wake of the growth announcements, shrugging off the grim figures as investors looked forward to a recovery, dealers said.

“This time around, the worst really seems to be over,” said Carsten Brzeski, an analyst at ING bank, commenting on the German growth figures.

“The worst part of the recession can now be seen in the rearview mirror but the road to recovery remains bumpy and long.”

Analysts at the consultancy Capital Economics said growing confidence “could feed back into a virtuous circle of improving sentiment, rising stock markets and a stronger recovery.”

They added: “Rising equity prices will restore some of the lost household wealth and should boost consumer confidence, which for all the talk of ‘green shoots’ is still near rock bottom in most economies.”

Japanese central bank data meanwhile raised concern that the world’s number two economy may be facing a repetition of its 1990s deflationary spiral when falling prices led to weak consumer spending.

“I welcome some signs of easing in the economic slowdown. But we need to remain alert about overall economic conditions,” Finance Minister Kaoru Yosano told reporters.

Some economists have said over recent weeks that the world is entering a twilight zone of conflicting signs, with key indicators lighting the way to a recovery even as grim economic data and job cuts continue.

The IMF suggested in a report this week that the European Central Bank had scope to cut interest rates even further from their current record lows and urged tough measures to shore up Europe’s financial sector.

The EU promptly announced that some of its banks will undergo “stress tests” like their US counterparts.

“Even assuming more forceful policy actions, the downturn is likely to last until early 2010,” the IMF said. “The subsequent recovery is expected to be gradual.”

Source: AFP