The global economy appears on the mend after a deep downturn, but the recovery is likely to be sluggish and risks remain, Federal Reserve Chairman Ben Bernanke said this afternoon.
"After contracting sharply over the past year, economic activity appears to be levelling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good," Mr Bernanke said in remarks prepared for delivery to an annual Fed conference here.
"Although we have avoided the worst, difficult challenges still lie ahead," he said, cautioning that the "recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels."
Mr Bernanke said "critical challenges remain" from global financial markets still strained from a severe crisis that broke two years ago. The difficulties households and businesses face in getting loans is another source of stress, he said.
The crisis highlights the need to "urgently" address structural weaknesses in the financial system, particularly in the way governments set rules and supervise it, he said.
Mr Bernanke was set to deliver the remarks at a conference sponsored by the Kansas City Federal Reserve Bank that draws top central bankers from around the world, along with a Who's Who of economists.
Germany, France and Japan have pulled out of recession and the US economy appears to be stabilizing after a devastating financial crisis and painful economic downturn that eliminated almost seven million US jobs.
The Fed chopped interest rates to near zero in December and has pumped around $1 trillion into financial markets to combat the crisis and spur economic growth.
Earlier this month, the central bank said it would phase out its purchases of long-term US Treasuries, one of the extraordinary measures it has used to revive the economy.
While the US economy appears to be gaining health, analysts worry a recovery could prove fleeting. Expectations for solid growth in the second half of the year reflect the impact of a government program to spur car buying and an anticipated restocking of inventories.
US consumer demand is still weak and unemployment is rising.