* Purchasers' surveys likely to be better but not great
* Headwinds to sustained recovery still blowing hard
* Eyes on Fed minutes, firm euro and new BOJ nominee
By Alan Wheatley, Global Economics Correspondent
LONDON, Feb 17 A raft of business surveys this
week will be combed over for confirmation of hopes that a dire
fourth quarter of 2012 marked the cyclical trough for the world
An index based on questionnaires sent to euro zone
procurement executives is likely to show activity is picking up,
according to economists polled by Reuters.
The same goes for the closely watched monthly poll conducted
by Germany's Ifo Institute and a barometer of confidence among
But the green shoots of recovery still have to push through
stony ground. Notably, the euro zone's advance purchasing
managers' index (PMI) for February is expected to remain below
the 50 mark which separates expansion from contraction.
"The big picture should be one of gradual improvement, but
let's not forget that both the PMI and the euro zone's economic
sentiment indicator are at levels which have historically been
consistent with contraction," said Nick Kounis, an economist
with ABN AMRO in Amsterdam.
Fiscal austerity, high unemployment, debt paydowns by
households and weak bank lending all point to Europe's recovery
being tepid in 2013.
What is more, a muddied outcome to Italy's general election
on Feb. 24/25 could revive worries about the capacity of
Europe's third-largest economy to reignite growth after more
than a decade of stagnation.
That in turn could disturb the calm that has settled over
the euro since the European Central Bank in September removed
any immediate threat to the currency's survival by promising to
act as a conditional bond buyer of last resort through its
Outright Monetary Transactions (OMT) programme.
Douglas Roberts, an economist with Standard Life in
Edinburgh, frets that the ECB's pledge is dulling Europe's
appetite for reform.
For instance, the recent failure of a big property lender in
the Netherlands and troubles at Monte dei Paschi di Siena,
Italy's third largest bank, were a reminder that work to
strengthen the euro zone's banking sector is far from complete.
"The longer OMT seemingly does its work, it is a hindrance
to progress elsewhere," Roberts said.
U.S.FISCAL DRAG VS HOUSING RECOVERY
In the United States, one of the obstacles to rapid recovery
is the prospect of a $100 billion reduction in across-the board
government spending kicking in on March 1 unless politicians
reach a last-minute agreement.
Economists at Credit Suisse estimate the cuts could reduce
average annual GDP growth to 1.5 percent from 2.0 percent this
year and to 2.3 percent from 2.5 percent in 2014.
Uncertainty over tax and spending policies is an extra
weight on households, already hit by an increase in payroll
taxes at the start of the year that is likely to hold back
spending for several months.
"You see a consumer who is a little bit nervous about
whether policymakers in Washington are doing the right thing,"
said Jason Ware, chief analyst at Albion Financial Group in Salt
He said a trio of reports - the National Association of Home
Builders index, housing starts and existing home sales - would
be important to gauge the extent to which the recovering housing
sector will help to offset the drag from fiscal policy.
CENTRAL BANKS AND G20 TAKE STOCK
Minutes from the most recent meetings of central banks in
the United States, Japan, Britain and Australia are likely to
underscore just how weak the world economy was in late 2012.
Economists at JP Morgan estimate that global growth last
quarter slowed to a rate of 1.3 percent, less than half the
trend pace and one of the worst outcomes - except for formal
recessions - dating back to the 1990s.
At a meeting in Moscow on Saturday, finance ministers from
the Group of 20 showed their concern over the fragile state of
the world economy by deferring plans to set new debt-cutting
The U.S. Federal Reserve is buying $85 billion worth of
bonds a month and has said it will keep short-term interest
rates extraordinarily low until unemployment falls to 6.5
percent from 7.9 percent now.
But some Fed policymakers in December sounded a more hawkish
tone than anticipated, Ware said, adding spice to the minutes
due on Wednesday of the central bank's Jan. 29/30 meeting.
"There was a more aggressive discussion than expected about
when to exit their unorthodox monetary policy if the economy
gets on a more stable footing. The market's antenna went up," he
In Japan, by contrast, the only question is how aggressively
the central bank will ease monetary policy under its new
governor to try to end years of mild deflation.
Prime Minister Shinzo Abe is expected to choose his nominee
for Bank of Japan governor in the next few days.
The G20 avoided singling out Japan for its bold plans to
reflate the economy through monetary and fiscal policy, even
though the resulting 20 percent drop in the yen since September
has fed talk of a spiral of competitive currency devaluations.
Kounis with ABN AMRO said the ECB would be justified in
countering sustained strength in the euro that threatened to
drag inflation below its target. If verbal intervention failed,
talk of a rate cut would come back onto the table.
"If the ECB has a low-inflation problem, with unemployment
rising and growth weak, the very least it can do is to react to
that," he said.