Officials at Fed summit say worst of crisis is over and near-term prospects look good
Jackson Hole (Wyoming) - It may be a little early to put on the party hats and pop the champagne corks but the global economy appears to be coming out of the worst recession since World War II.
The world's central bankers expressed growing confidence here that the worst of the financial crisis is over and that a worldwide economic recovery is beginning to take shape.
'The prospects for a return to growth in the near term appear good,' said US Federal Reserve chairman Ben Bernanke on Friday, offering optimism both about the United States and the worldwide outlook.
Though he repeated his warning that the economic recovery was likely to be slow and arduous, and that unemployment would remain high for another year, the Fed chairman went beyond the central bank's most recent statement that economic activity was 'levelling out'.
Speaking to central bankers and economists at the Fed's annual retreat here in the Grand Tetons, Mr Bernanke echoed the growing relief among European and Asian central bankers that their own economies had already started to rebound.
Here in Jackson Hole, the mood of relief and cautious confidence among central bankers and economists on Friday was almost palpable - a stark contrast to the anxiety and tension that permeated their retreat here one year ago.
Economic reports last week showed unexpectedly strong signals of a rebound in the US, Germany and France.
Spurred by record-low interest rates and trillions of dollars in stimulus, sales of existing homes in the US jumped last month to the highest level since August last year.
The 7.2 per cent rise was the biggest since the National Association of Realtors began keeping records in 1999.
On the other side of the Atlantic, German service industries expanded this month for the first time in almost a year, reports yesterday.
German investor confidence jumped to its highest level in more than three years, according to the Mannheim, Germany-based Centre for European Economic Research. In Asia, the Japanese economy grew for the first time in five quarters, according to a report earlier last week.
Exports led the revival of the world's second-largest economy last quarter, which expanded by 3.7 per cent on an annualised basis.
'There is no question the global economy is healing and emerging from recession,' Harvard University professor Kenneth Rogoff, a former chief economist for the International Monetary Fund, said in a television interview yesterday.
'The recession is over,' said Mr Klaus Baader, chief European economist at Societe Generale in London, who called the latest signs an 'incredible reading'.
Investors have already started celebrating.
The Dow Jones Industrial Average jumped as soon as the markets opened on Friday and ended the day up 155.91 points, or 1.67 per cent, at 9,505.96.
Though stock prices are far below their record highs, the Dow has risen 45 per cent from March and is at its highest point this year.
'This is a bull market,' said Birinyi Associates president Laszlo Birinyi Jr, who added that he was investing in large banks, well-established technology companies like Apple and big industrial companies like 3M and United States Steel.
'There's just a desire to be in the market and hope that the train will again leave the station,' he said.
European stocks also rose last week, sending the Dow Jones Stoxx 600 Index to its highest level since October.
But European Central Bank president Jean-Claude Trichet sounded a note of caution, saying that 'green shoots' are not enough for him to declare the recovery sustainable, and that officials 'have an enormous amount of work to do'.
Mr Bernanke and other global policymakers also noted that the recovery is likely to be muted, indicating they would not soon remove all the stimulus injected into the financial system.
'Strains persist in many financial markets across the globe,' he said in a speech to the gathering of money men on Friday.
'The economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.'
Bloomberg, New York Times
Source: Sunday Times, 23 Aug 2009
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