Surveys hint at slowish turnaround

THIS week&rsquo;s May purchasing managers&rsquo; indices (PMI) are expected to give a further boost to hopes of a recovery, with many economists now forecasting a return to positive growth in the second half of 2009, although they warn it will not be painless.<br /><br />All three PMIs are expected to show that the rate of contraction is declining, adding to positive CBI service sector data and consumer confidence figures released last week.<br /><br />The consensus forecast for manufacturing PMI is 44.5 and for services, 49.5 &ndash; just half a point from the critical 50 level that indicates unchanged activity. In the past a figure of 43.5 has been consistent with flat GDP growth. If the PMI data is as forecast then we could see a positive growth figure by as early as the third quarter of this year.<br /><br />The severity of inventory destocking in the first quarter of this year suggests that there will be a corrective rebound in the second quarter as manufacturers look to restock their depleted inventories, which makes a positive figure in the second half more likely.<br /><br />Alan Clarke, economist at BNP Paribas says that an improvement is unsurprising. &ldquo;We have had such a huge contraction that when the cogs start whirring again, then by definition output has started to expand.&rdquo;<br /><br />However, rising unemployment and falling growth in company profits mean that there are doubts about the sustainability of a positive growth figure. The fundamental rebalancing of the UK economy will not allow a fast recovery and a large correction is still needed, casting further doubt over Alistair Darling&rsquo;s 3.5 per cent forecast, says ING&rsquo;s James Knightley.<br /><br />He added: &ldquo;Ongoing deleveraging, a higher savings rate, and continued restriction of credit all mean a lower rate of growth of 1.5-2 per cent per year compared to 2.5 per cent pre-recession. It&rsquo;s a bumpy road ahead.&rdquo;