THE GLOBAL economy is starting to emerge from recession after vigorous action by the world’s central banks and governments succeeded in averting economic catastrophe, Ben Bernanke said yesterday.
Speaking to central bankers at their annual retreat in Jackson Hole, Wyoming, the US Federal Reserve chairman said: “Prospects for a return to growth in the near term appear good.”
Economic activity “appears to be levelling out both in the US and abroad”. The most dangerous phase of the crisis was now past, Mr Bernanke said, although he stopped short of declaring the crisis was over.
His comments came as closely watched surveys suggested the euro-zone economy is returning decisively to growth earlier than expected, boosted by Germany’s recovery jumping into a higher gear. Purchasing managers’ indices for the 16-country region were the strongest since May last year, adding to evidence that the recession was over and that policymakers might have underestimated the pace of recovery.
The latest readings gave “a clear indication that we’re heading for a very strong third quarter, particularly in Germany”, said Jörg Krämer, chief economist at Commerzbank.
The severe downturn is being followed by “a historically rapid rebound”, said Rob Dobson, senior economist at Markit, which produces the surveys.
Germany and France last week wrongfooted economists by both reporting a 0.3 per cent rise in gross domestic product in the second quarter compared with the previous three months – marking the technical end of their recessions.
Germany’s purchasing managers’ index indicated its recovery had gathered further momentum, jumping from 49 in July to 54.2 in August. A figure above 50 indicates an expansion in activity.
The growth was driven by the service sector, where employment rose, but manufacturing also showed a further rebound.
France’s economy was also expanding, according to a separate purchasing managers’ index.
Rising unemployment and a weakened banking sector are expected to act as brakes on growth. Europe’s rebound is also held back by countries facing structural adjustments, including Spain and Italy.
Mr Bernanke said critical challenges remained but the recovery was likely to be weak initially with unemployment remaining high for a long time. “Strains persist in many financial markets across the globe . . . and many businesses and households continue to experience considerable difficulty getting access to credit,” he said.
Speaking at the symposium, European Central Bank president Jean-Claude Trichet said talk of economic conditions’ returning to normal made him uneasy.
“I am a little bit uneasy when I see that, because we have some green shoots here and there, we are already saying, ‘well, after all, we are close to back to normal’.”
He said there was still an “enormous amount of work to do and we should be as active as possible”.
Mr Bernanke left open the possibility that growth could sag again after picking up in the second half of this year.
His comments came on the same day data showed sales of previously owned homes in the US took their greatest leap on record last month. Home sales rose 7.2 per cent in July against the previous month, according to a survey by the US National Association of Realtors. This was the biggest monthly rise since records began in 1999.
Sales have increased for four months running as buyers are wooed by government tax credits and the cheapest house prices since 2003. – (Copyright The Financial Times Limited 2009)
