The US financial world has finally heard its first bit of good news. The IMF said on Tuesday that the global economy was on the mend. Then on Friday, US Federal Reserve chief Ben Bernanke said in a speech that global prospects for a return to growth from recession appeared good, despite financial market strains. Though he cautioned that the nation’s woes were not over, he suggested, with great restraint, that easier times were ahead.
"After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good," he said.
Results from the second quarter of 2009 were published last week, yielding the good news that Germany and France had each reported GDP growth of 0.3%, which, small though it may seem, officially indicated the end of their recessions after four consecutive quarters of losses. Japan and China also reported growth. In the US, however, there was not much to celebrate, with GDP dropping 1.0%. President Barack Obama said in a speech on August 11 that the US was “not out of the woods” and that things would get worse before they got better. "The severity of this recession will cause more job loss, more foreclosures, and more pain before it ends.”
Bernanke’s speech, entitled “Reflections on a year of crisis,” was delivered to central bankers at a meeting in Jackson Hole, Wyoming (click here for full text of speech)
Bernanke said although fears of financial collapse had receded substantially, critical challenges remained as the world grapples with a financial crisis that slammed the brakes on growth following a US home mortgage meltdown.
"Strains persist in many financial markets across the globe, financial institutions face significant additional losses, and many businesses and households continue to experience considerable difficulty gaining access to credit," he said.
"Because of these and other factors, the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels," he said.
The United States is expected to post positive growth in the third quarter after two consecutive quarters of contraction.
"We must work together to build on the gains already made to secure a sustained economic recovery, as well as to build a new financial regulatory framework that will reflect the lessons of this crisis and prevent a recurrence of the events of the past two years," he said.