Preliminary GDP data for the UK came in well below analyst expectations today, falling by 0.8% in the second quarter of 2009. Analysts had expected a fall smaller decline of just 0.3%.

It should be remembered that these preliminary estimates do have a habit of being substantially revised before they are finalised, however the magnitude of this fall should be enough to temper some of the more extreme claims that the recession ended some time back in May.

Don't get me wrong, there are signs that the recession is starting to moderate. The 0.8% GDP decline is nothing compared to the 2.4% seen in the first quarter of the year and recent indicators have pointed to continued improvement. However, pulling out of this recession is going to be a long process, and unfortunately a rather painful one. For one unemployment is up by more than 700,000 since the start of 2008 and will continue to rise, even when the economy starts to grow again.

These GDP figures are also lower than the last budget predicted and will mean that the government is highly unlikely to meet its fiscal forecasts. As a result taxes are highly likely to rise and the public sector is likely to experience cuts in funding. This will inevitably mean that jobs will be lost in the public sector, further forcing up employment and destroying one of the last bastions of secure employment.

A probable turn in the inventory cycle as manufacturing businesses, having run down their stocks, restart production and recent economic indicators suggest that the UK economy may return to positive economic growth as early as the third or fourth quarter of 2009. This is indeed possible. However, the road to recovery will not be smooth. The unwinding of fiscal imbalances, a return to a normal interest rate environment and the withdrawal of quantitative easing will be difficult, threatening recovery.

Whatever shape you think the recovery will take one thing is for sure, it will not be easy!

Unemployment continues to grow across the globe, with no countries remains unaffected by the global recession. In the Unites States the unemployment rate reached 7.2 per cent in December, its highest level since 1992. This followed a loss of almost 600,000 jobs in the month, the largest drop in over thirty years. Unemployment will continue to rise in most countries for the majority of 2009.

Nevertheless for the first time in quite a few months the latest economic data has started to show some glimmers of hope. This is not to say that there has been a dramatic improvement in the global economy, but there are perhaps some signs that the rate of economic contraction is decelerating. Although this means that the economy is still shrinking it could be the first steps towards reaching a trough.

Earlier this week the Purchase Manager Indices (PMI) figures for manufacturing and services showed an improved economic environment in both the UK and Europe. It showed that manufactures were benefiting from lower input prices, whilst those in the UK were starting to be helped by the rapid weakening of the pound. Services in the UK and Europe were also buoyed as lower interest rates and government intervention increased the outlook for the sector.

Later in the week the US ISM survey of non-manufacturing businesses improved for the second month in a row. It indicated that business conditions were improving, despite new orders continuing to fall. The US PMI manufacturing survey also increased in the month. Again both indices were improved but implied further economic contraction.

It should be remembered that these figures are indicating changes in the month, and therefore it is dangerous to read too much into them. It should also be noted that the employment parts of these surveys continue to deteriorate, representing an acceleration of unemployment.

Nevertheless the stage is being set for what will be a long crawl back to positive economic growth. Inflation continues to fall in Europe and the US, giving policy makers the room to cut interest rates further or to use monetary stimuli such as quantitative easing. Falling inflation will also help to boost real incomes, whilst reducing the attractiveness of savings, providing a much needed boost to consumer spending.

On top of this, lower interest rates and rising unemployment will provide benefits to business. Although, banks remain unwilling or unable to increase lending to businesses, there are early signs that the bond market is starting to re-open (although at a high price), whilst some bank facilities have become significantly less expensive. In addition, being able to cut jobs has enabled some companies to reduce costs, increase productivity and adapt to the changing business environment.

A return to normal economic conditions remain a long way away, even positive quarterly economic growth is unlikely in a number of countries until 2010. However, should the latest economic indices continue to improve then perhaps we are seeing a light at the end of the tunnel. The tunnel is likely to be quite long, but now could be the best time to start preparing for the upturn.