ECB's Trichet Calls a Bottom

The typically cautious European Central Bank head says new data suggest the global economy has reached an 'inflection point in the cycle'

By Andrew Willis

The global economy has reached a turning point, says the normally cautious eurozone central bank president, Jean-Claude Trichet, as new economic data released on Monday (11 May) suggest additional evidence of tentative green shoots of economic recovery.

"We are, as far as growth is concerned, around the inflection point in the cycle," said Mr Trichet at a news conference in Basel, Switzerland, where he chaired a meeting of central bankers from around the globe.

Central banks have been cutting interest rates aggressively since the crisis started, with some also adopting non-standard measures such as the purchase of corporate and government debt as a means of boosting the economy.

However, Mr Trichet warned against over-optimism.

"There has been a substantial improvement in the markets since mid-September," he said. "But we have to remain very alert. We are still in uncharted waters."

Adding to the cautiously upbeat sentiment are new figures released by the Paris-based Organisation for Economic Co-operation and Development (OECD) on Monday, suggesting several larger economies are already on the mend.

Despite pointing to a continued slowdown for developed countries as a whole, leading economic indicators for France and Italy have risen for three straight months, says the organisation, while those for the UK and China have risen for two straight months.

The apparent "trough" for these four economies compares favourably with the US, Germany and Japan, where a return to growth appears to be a long way off says the OECD.

Looking to the future, Mr Trichet said central banks must keep their eye on the correct time to scale back growth-promoting measures so as not to over-inflate the global economy.

"Insistence is put on the exit strategy, on the medium-term path that permits us to go back to a normal situation, a sound and sustainable situation," he said.

Setback for Poland

While London, Paris and Rome, were left to mull over the OECD's news, the economy of another large EU member state appeared to hit a stumbling block along its road to recovery.

Speaking to the Financial Times, Polish finance minister Jacek Rostowski admitted his country's entry to the euro area – seen as a major pillar of its recovery plan – may be set back by as much as one year.

The country had hoped to join the two-year waiting chamber, known as ERM-II, to the euro area this year, with a full shift to the common currency scheduled for 2012.

"The first of January 2012 is still realistic, but it may require some delay," said Mr Rostowski. "The world crisis has come along and it would be naive to pretend it has had no effect ... If we move it by one year, that's not the end of the world."

Until recently, the main impediment to Polish accession to the euro area was the country's fluctuating currency, the zloty.

The currency plummeted at the start of this year as the economic crisis worsened but then regained strength and has maintained stability in recent weeks, partly due to a €15 billion credit line from the International Monetary Fund.

However, it now appears that the country's greatly reduced growth rate, causing a corresponding fall in tax receipts and an increase in the budget deficit, is the chief cause for the likely delay.

Mr Rostowski says he will not increase spending and says the country's deficit will be no more than 4.6 per cent of GDP this year. A recent economic forecast by the European commission puts the figure at 6.6 per cent for this year, rising to 7.3 per cent in 2010.

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