The chairman of the US Federal Reserve, Ben Bernanke, has declared that the world’s largest economy is probably out of recession, but has warned that the road to recovery will be long and slow.
“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said at the Brookings Institution, a Washington think tank.
While Bernake’s declaration has been welcomed around the world, it is likely that American’s unemployment rate – which current hovers just below 10% – will be difficult to shift.
“The general view of most forecasters is that the pace of growth in 2010 will be moderate, less than you might expect given the depth of the recession because of ongoing headwinds,” Bernanke said, citing tight credit conditions and other economic restraints.
However, investment guru Warren Buffett has put some doubt on Bernanke’s comments, claiming the US economy has not yet turned the corner.
“At the moment we don’t see [the economy] getting better or worse, but that’s better than you could say six months ago,” the billionaire said in a recent interview.
“The terror of last year is gone and that’s thanks in part to the Government.”
“The economy has not turned up but it will… I just don’t know when,” Buffett said. “It could be tomorrow.”
The slow-growth story has been confirmed by research from Westpac this morning. The annualised growth rate of the Westpac-Melbourne Institute index, which indicates the likely pace of economic activity three to nine months into the future, was -1.8% in July, well below its long-term trend of 2.5%.
Westpac chief economist Bill Evans says the data confirms his bank’s view that growth will be “tepid” in the second half of 2009, which is yet another reason for the RBA not the lift rates any time soon.
“It rightly points out that uncertainties remain and that is a clear signal that a rate hike is very unlikely to result from the October meeting,” Evans said.
Shares close to one-year high
Bernanke’s message and a good night on Wall Street has helped the Australian market move sharply higher this morning.
The benchmark ASX-S&P 200 index was 90.9 points or 2% to 4631.2 points at 12:15 AEST.
Telstra shares leapt 3.9% after yesterday’s announcement that the Government would force the company to separate its retail and wholesale assets. All the banks were up more than 2.5%, with Commonwealth Bank leading the charge, up 3.2% to $47.99 this morning.
Wall Street also took heart from Bernanke’s comments, with investors pushing the US market to its highest level in 2009. The Dow Jones industrial average rose 0.59%, while the Standard & Poor’s 500 Index gained 0.31% and the Nasdaq Composite Index added 0.52%.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
