* Euro zone 2009 GDP forecast revised down, 2010 unrevised
* Virtually no change to growth profile for H2 2009, H1 2010
* Vast majority say the worst of recession has passed
* Deflation remains the bigger threat
By Ross Finley
LONDON, May 13 (Reuters) - The euro zone economic outlook for this year has been downgraded again, according to the latest Reuters poll of economists and expectations remain for feeble growth in 2010, despite surging optimism on financial markets.
The Reuters euro zone consensus has remained consistent in predicting a very weak recovery in the 16-member bloc over the past several months despite an equity market rally that now has leading share prices up by more than a third since early March.
The consensus view, taken from a regular monthly sample of around 60 economists across Europe, shows virtually no change to the quarterly growth profile in the second half of this year and the first half of 2010 compared with a poll taken one month ago.
Economists have revised down their outlook for first quarter gross domestic product (GDP), now seen shrinking 2.0 percent compared with 1.6 percent in the April poll although most agree that the worst of the recession has now passed.
The downgrade to the first quarter forecasts accounts for the more pessimistic view for 2009 as a whole, now expected to contract by 3.7 percent, by far its worst performance on record, and some way down on the 3.2 percent fall predicted last month.
Over the past year and a half of monthly Reuters polls, median forecasts for 2009 GDP have ranged from as high as 2.1 percent growth to this new low showing 3.7 percent contraction.
The 2010 full-year growth outlook remains unrevised from the April poll at a meagre 0.4 percent, which stands in sharp contrast to building optimism in financial markets about a more robust world growth recovery.
"While the worst of the recession in terms of the sharpest output declines seems to be behind us, the recession has not yet hit bottom, and output will continue to decline until the turn of the year," said economist Dawn Holland at London-based think tank the National Institute for Economic and Social Research.
That is a view echoed by other independent analysts. "We suspect that the actual recovery still remains some way away and relapses are a very serious risk," said Howard Archer, European economist at consultancy IHS Global Insight.
Euro zone GDP is expected to contract by 0.6 percent in the second quarter, downgraded from 0.5 percent polled one month ago. Consensus forecasts for a 0.2 percent contraction in the third quarter and just 0.1 percent growth in the final three months of this year are essentially unchanged from April.
The latest Reuters consensus is more optimistic than the International Monetary Fund, which in its latest report sees a "deep recession" for Europe. The IMF expects the euro area to contract by 4.2 percent this year and by 0.4 percent next year.
The European Central Bank, which cut interest rates to a record low of 1.0 percent just last week and announced a new programme in which it will buy covered bank bonds, remains cautious and has left itself room to cut rates again.
But analysts polled expect the main refinancing rate to remain on hold at 1.0 percent until the end of next year.
DEFLATION A THREAT, BUT NOT LIKELY
Indeed, economists who answered an additional question on which was the more likely threat picked deflation over inflation by a wide margin. Consensus forecasts show euro zone prices set to average an annual decline of 0.1 percent in the third quarter.
Price pressures are then set to pick up modestly from there, averaging just 1.3 percent in 2010, still well below the ECB's preferred 2.0 percent ceiling. That consensus view is essentially unchanged from the Reuters poll taken a month ago.
News on Wednesday that euro zone industrial production fell a staggering 2.0 percent in March, double expectations, for a more than 20 percent decline on the year, underscored the fragile state of the euro zone economy and led many analysts to conclude there are downside risks to Q1 GDP figures, due to be released Friday.
But 35 of 40 economists said the worst is now over.
That is a view reflected in business surveys over the past several months, which have pointed to a significant slowdown in the rate of contraction in orders and production as well as rising optimism about conditions a year from now.
"Remember that the celebration continues to be all about smaller contractions rather than about positive growth so the output gaps continue to increase," noted Erik Nielsen, chief European economist at Goldman Sachs.
"We should soon see some more robust signs of spring, first in the UK and then in the core of Europe."
(For poll data click on [SURVEY/])
(For further stories from the poll see [ID:nLD666795])
(Polling by Bangalore Polling Unit; editing by Stephen Nisbet)