Now ECB's Trichet sees 'green shoots'
May 11th 2009 12:30PM
Updated Dec 4th 2009 11:52AM
If creating buzz about better times can help create better times, then better economic conditions may be ahead.
That's because even now European Central Bank President Jean-Claude Trichet is sounding positive and seeing "green shoots."
"As far as growth is concerned, we're around the inflection point in the cycle, that's the sentiment," Trichet said Monday at a press conference at the Bank for International Settlements in Basel, Switzerland, Bloomberg News reported. A number of recent reports are "encouraging, but it's no time for complacency," Trichet added.
Trichet's comments occur about a week after both the ECB and China signaled additional efforts to further loosen credit markets and provide liquidity.
China's central bank pledged to keep money flowing into the financial system to sustain growth, and the ECB said it would buy 60 billion euros or $80.5 billion in covered bonds to increase liquidity in the euro zone. The ECB also decreased its benchmark, short-term interest rate to one percent, a record low, at that time, as well. Meanwhile, through fiscal and monetary policy, the United States has added a record $12.8 trillion in stimulus and liquidity to the economy and financial system.
Two encouraging manufacturing stats
Two key indicators suggest the pronounced economic slump on both the North American and European continents may be bottoming. U.S. manufacturing activity increased in March and German manufacturing orders also rose, Reuters reported.
Trichet, a legendary inflation hawk, surprised the markets last week by agreeing to a quantitative easing strategy with the covered bonds purchase. The move bolstered confidence in European business circles that the ECB would not quickly increase benchmark interest rates or otherwise attempt to reduce liquidity at the first sign of recovery.
Trichet Monday reiterated the ECB's commitment to maintain liquidity. Central banks, he said, will "do what is necessary in terms of extraordinary measures, as long as necessary," Bloomberg News reported Monday, while also insisting on a medium-term path that permits central bank officials to normalize monetary policy.
Economic Analysis: Add another data point that indicates a hint of demand. Interpret Trichet's comments as being rooted in information most economists and investors can't see, including conversations with key European bankers. Those facts, combined with the International Monetary Fund's report that there were "tentative signs" that the global contraction is moderating, point to a bottom up ahead. The IMF itself now expects the global economy to contract 1.3 percent in 2009 before expanding 1.9 percent in 2010, although investors should keep in mind that due to the global economy's higher growth capacity, a 1.9 percent GDP growth rate is still very weak growth.