Tuesday March 17, 03:47 PM
US, German 'green shoots' spark recovery hopes
WASHINGTON (AFP) - More "green shoots" of recovery sprang up unexpectedly on Tuesday in the key US and German economies, sparking hopes that after months of unrelenting grim news the worst of the slump might be over.
Analysts advised caution, however, warning not to get too carried away as the tumbling data finally begin to bottom out -- the downturn may slow but getting the economy back up off the floor is a different matter again.
News that US home construction starts and permits posted a surprise jump in February from 50-year lows was taken initially as perhaps a turning point for the moribund property market at the epicenter of global financial crisis.
Many analysts believe that there can be no wider recovery without the US housing sector first stabilising.
US home starts soared 22.2 percent to a seasonally adjusted annual rate of 583,000 units after seven months of decline, well above forecasts for 450,000.
Permits rose three percent to a seasonally adjusted annual rate of 547,000, again well above forecasts for 500,000.
Meanwhile in Germany, Europe's biggest economy, the ZEW investor confidence indicator, closely watched for economic trends, rose 2.3 points to minus 3.5, its best level since July 2007.
"According to financial market experts, the economic slowdown is gradually phasing out. The bottom of the recession is likely to be reached this summer," ZEW president Wolfgang Franz said in a statement.
"The economic situation is extremely bad but there are the first signs of hope. They should not be played down," Franz said.
The initial market reaction was positive, building on last week's gains and comments over the weekend by US Federal Reserve chairman Ben Bernanke who said he saw recovery next year as stimulus measures begin to kick in.
"I think as those green shoots begin to appear in different markets and as some confidence begins to come back, that will begin the positive dynamic that brings our economy back," Bernanke told CBS (NYSE: RBV - news) on Sunday.
"We'll see recovery beginning next year," he added.
The tone soon darkened again, however, as analysts looked more closely at the data, reluctant to believe it could be taken as a genuine turning point.
"The housing market may be thawing but this month's gain only brings the pace of total starts back up to that of December 2008," said Celia Chen of Moody's Economy.com.
"Activity remains quite soft," she said.
Analysts were also reticent about the German figures.
"There is no reason to become overly enthusiastic," said Carsten Brzeski from ING Financial Markets.
"Things will still get worse before they become better for the German economy. The start in the New Year could have hardly been worse," he said, noting the "shocking collapse" of industrial production in January.
Martin Lueck from UBS (Virt-X: UBSN.VX - news) argued that "while things will likely start looking somewhat less nasty six months from now ... this does not mean that the economy will get out of the woods and back to growth anytime soon."
Analysts at Morgan Stanley (NYSE: MS - news) downgraded their 2009 eurozone forecasts to a contraction of 3.3 percent rather than their previous 1.6 percent, reflecting a view that the worst is by no means over and will not be until 2010.
European Union Economic Affairs Commissioner Joaquin Almunia meanwhile warned of possible social unrest as the slump takes its toll on jobs.
"We cannot stand by and observe (rising) tensions everywhere," he insisted, adding that it would be necessary "to use all available means to help those who lose their jobs."
On Wall Street, the US housing start figures gave an initial boost but the market then traded in a narrow range as investors consolidated recent gains.
At round 1530 GMT, the Dow Jones Industrial Average was up 0.28 percent.
In Europe, most markets were lower, with London's FTSE 100 index of leading shares down 0.62 percent, the Frankfurt DAX off 1.40 percent and the CAC in Paris 1.32 percent lower.
"The European markets fell as investors looked to take some profits," said Joshua Raymond, analyst at City Index. "What we now need to see is a small degree of consolidation and investors taking a pause for breath."
Asian markets earlier finished mostly higher, with Tokyo up 3.18 percent after the government said it was considering a stimulus package for the high-tech sector.
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