Finally, charting the recovery''s course

By Emily Kaiser

WASHINGTON (Reuters) - If the majority of Wall Street economists are right, the U.S. recession will end this quarter and the global recovery won''t be far behind.

On Wednesday, the International Monetary Fund is expected to nudge up its forecast for 2010 global growth from the current estimate of 1.9 percent, primarily because fears of a more serious economic setback have not materialized.

That makes for a brighter backdrop to this week''s meeting of leaders from the Group of Eight major industrial nations in Italy, where the economic outlook is top of the agenda.

IMF officials are expected to urge the G8 to start planning now for how to go about undoing the special lending programs and stimulus packages worth trillions of dollars that were put in place to prevent the recession from becoming a depression.

Recovery will not be a smooth process, and there are plenty of reasons to be cautious about the strength of the rebound. As Banc of America Securities-Merrill Lynch economist Drew Matus put it, this quarter marks a "new beginning with some nagging reminders of the past."

First, the good news.

The U.S. housing slump appears to be near an end after 3-1/2 years of decline. That, combined with a strong stock market performance in the second quarter, should stop the hemorrhaging in household wealth after more than $12 trillion in losses since the recession started in December 2007.

Government stimulus money is flowing in the United States and other major economies including Japan, China and Germany.

Global manufacturing surveys show output expanding after a year-long period of contraction. In the United States, the pace of new orders is improving while inventories keep shrinking, so production may need to pick up soon to meet demand.

Figures due on Thursday are expected to provide a good illustration of that. Economists polled by Reuters think U.S. wholesale inventories dropped 1.1 percent in May, while sales were flat.

Those are among the reasons why Matus recently raised his U.S. economic outlook to show an above-consensus 2.7 percent jump in 2009 gross domestic product.

LONG HANGOVER

Now for the bad news.

The hangover from the credit binge and bust will linger. Households have a long way to go to patch the hole in their finances, which means even when the recession officially ends, consumer spending will probably remain subdued.

Wednesday''s report on U.S. consumer credit bears close watching for more evidence that Americans are paring their credit card debt as banks clamp down on lending and consumers rethink attitudes toward borrowing and spending.  Continued...