Global economy to post ‘significant pick up’ in 2010

BASEL, Switzerland (AFP) — The global economy will slow sharply this year before posting a “significant pick up” in 2010, the Group of 10’s central bankers said Monday.

“If there is (the) overall sentiment that the global economy will slow down significantly in 2009, with industrialised economies having negative figures, it is also noted that 2010 should be the year of the recovery,” European Central Bank head Jean-Claude Trichet said as the spokesman for the G10 central bankers meeting at the Bank for International Settlements (BIS).

Unprecedented measures taken by governments and central bankers to avert a financial system meltdown had not been “fully priced in” by the markets but they will “progressively play a positive role” in the recovery of the global economy.

“That’s why we think that 2010 will be the year of significant pick up,” Trichet said.

But for this year, a “synchronised slowing down” of the world economy which began in the second half of last year is expected to go on, said Trichet.

Emerging markets, which have been lending support to global economic growth, are now also slowing, he noted, underlining that the negative effects of the financial crisis are feeding into the real economy.

However, he stressed that emerging markets as a whole were not at risk of negative growth.

“All taken into account, the emerging world is slowing down but remains as a group in positive territory and is still of course, contributing to global growth,” said Trichet.

World financial markets have been in turmoil since the collapse of the US subprime or higher-risk mortgage sector in 2007.

In the fallout, the credit essential for business has virtually dried up as the banks have been hit by billions of dollars in losses on their subprime exposure.

Central bankers of major economies have in recent months taken coordinated action to pump in liquidity to unfreeze credit and slashed interest rates in an effort to kickstart economies.

Governments have also bolstered ailing banks through recapitalisation and they have also provided guarantees for savers’ deposits in order to restore confidence in the banking system.

“These have proved efficient to avoid a meltdown and have been progressively priced in by the financial (sector) … but we are far from markets fully pricing in all those very important decisions that have been taken,” Trichet said.

He noted that restoring confidence remains “of the essence.”

“The large part of the slowing down that has been observed comes from the confidence channel and it is important for all authorities … to do whatever is appropriate to preserve confidence … and permit again the channel of confidence to function positively after having functioned in a negative direction over the second semester of last year,” he said.

The Group of 10 comprises Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom and the United States.