The global economy will recover significantly in 2010 from a sharp slowing this year as official steps to boost growth hit home, top central bankers said on Monday.
European Central Bank President Jean-Claude Trichet, who chaired talks on the world economy, said restoring confidence was crucial as emerging markets join the industrialized world in feeling the impact of the financial crisis. “The global economy will slow down significantly in 2009 with the industrialized economies having negative figures,” he said, summing up the talks at the Bank for International Settlements.
Trichet, who also chairs the Group of 10 central bankers from leading economies, said lower oil prices, extra government spending and central bank steps to boost economies would have a positive impact in the longer term. “That was one of the reasons why we globally have the sentiment that 2010 is the year of the pick-up, a significant pick-up,” he said.
Major central banks have slashed interest rates in the last few months and boosted liquidity as the financial market crisis spread and dragged major developed economies, including Japan, the United States and the euro zone, into recession.
The International Monetary Fund predicts global growth this year of just 2.2%, down from an estimated 3.7% in 2008, and other major institutions have similarly low expectations. Governments have also raised public spending to support growth, with Britain pledging extra money to help jobs and US President-elect Barack Obama promising to restructure a financial rescue plan to save more families from home foreclosures.
Trichet said central bank and government action so far had helped to avoid a market “meltdown” but markets had not yet fully taken on board all the measures undertaken and confidence was still lacking. “In the present situation more than ever confidence is of the essence,” he said. “(A) large part of the slowing down that is been observed comes from the confidence channel. It is important for all authorities to do whatever is appropriate to preserve, to reinforce confidence.” In general, central bankers were still keen to make sure inflation expectations remained solidly anchored, he said.
Trichet made no comment on ECB interest rates before a policy meeting on Thursday, when analysts expect the Governing Council to cut euro zone rates -- currently the highest in the Group of Seven -- by another 50 basis points to 2.0%. The US Federal Reserve, which has slashed its rates close to zero, is supplementing cuts with unconventional steps such as buying up assets. But Trichet said there was no talk of central banks taking coordinated steps in this regard.
Officials attending the talks, who included Fed chairman Ben Bernanke and Bank of Japan Governor Masaaki Shirakawa, also had no discussion about currency exchange rates, although Trichet said this did not imply any contradiction to the G7 official stance. The January BIS talks were also attended by commercial bank chiefs, as usual for the first meeting of the year, and policymakers from emerging market economies including Brazil, Mexico, India and China.
China’s central bank head Zhou Xiaochuan said the world’s fourth-largest economy was slowing moderately but the bank was still basing its economic policies on the assumption of 8% GDP growth this year. “It’s a moderate slowdown. Certainly we will keep a very good vigilance to prevent a sharp slowdown but up to now I think we can see in comparison with many other countries it is a moderate slowdown,” he told reporters at the meetings. (Reuters)