Global recovery takes shape, markets skeptical

The broad but sketchy outlines of a global economic recovery are taking shape, brightening prospects for key meetings of world finance chiefs but failing to convince skeptical stock markets on Wednesday.

The signals picked up during the day were tentative, in most cases pointing to a slowdown in economic decline and job losses rather than solid gains.

Analysts heavily hedged their upbeat assessments, cautioning that the recovery remained fragile at best.

Investors too were wary, fearing that any recovery could unravel once massive government support measures are withdrawn.

Jean-Claude Juncker, head of the eurogroup of finance ministers, was able to assert in Brussels that the worst of the financial crisis is "over for the time being."

In the United States, private sector job losses slowed while worker productivity soared, following the first expansion reported on Tuesday in US manufacturing after an 18-month decline.

The 16-member eurozone economy shrank by just 0.1 percent in the second quarter, a huge improvement on the record 2.5 percent plunge in the first, official figures showed.

Earlier in the day Australia reported growth, its economy expanding 0.6 percent in the second quarter -- the best result among developed countries and much better-than-expected.

The fresh signs of economic revival came as finance ministers from the Group of 20, which comprises leading developed and developing nations, were to meet in London at the weekend to draft a strategy to keep the momentum going.

They will lay the groundwork for a G20 summit in the US city of Pittsbugh on September 24-25.

World leaders have been upbeat but equally cautious about declaring victory in the epic battle against recession and have warned that recovery will be slow as they focus on the looming dilemma of how to exit stimulus programmes.

"The global economy is not out of the woods yet by a long stretch," said Australian Prime Minister Kevin Rudd after announcing the country's return to growth, deemed to have been "remarkable" by his treasurer, Wayne Swan.

US payrolls firm ADP reported Wednesday that the US private sector shed the smallest number of jobs in nearly a year -- 298,000 in August -- but this was still more than the 250,000 expected and hit sentiment on Wall Street.

The ADP said that while the number of jobs was still expected to decline as the world's largest economy pulls out of a prolonged recession, "employment losses are clearly diminishing."

The US Department of Labor meanwhile said productivity, which measures the hourly output of a worker, increased much faster-than-expected in the second quarter and at a pace -- 6.6 percent -- not seen since third quarter 2003.

"Like a boxer staggering to its feet, the US economy is recovering," said Peter Morici, a professor at the University of Maryland School of Business.

He pointed to recent gains in consumer and technology spending and in new home construction that should lead to growth of 2.0 percent in the second half -- provided such progress is not snuffed out by a credit squeeze.

The eurozone data confirmed initial figures released August 13 that also showed the top two eurozone economic powers, Germany and France, growing 0.3 percent in the three months to June compared with the first quarter.

As a result, the European Central Bank, was widely expected to hold its benchmark interest rate at 1.0 percent when it convenes on Thursday.

"While keeping rates on hold this week, the ECB can shift gears from crisis management to safeguarding the momentum" seen in France and Germany, ING senior economist Carsten Brzeski said.

At Capital Economics in London, analyst Paul Dales noted that while "the good news is that the recovery in the US manufacturing and housing sectors appears to be gathering pace ... the bad news is that it is still not creating any extra jobs."

The US government on Friday will release its August employment report, revealing the number of job losses last month and serving as a critical yardstick by which to measure the strength of the global rebound.