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Time for Some Good News

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Time for Some Good News

In the midst of the global economic slowdown, the question on most people’s lips is how much longer this situation will last. While few economic analysts are prepared to commit themselves to an exact timescale, Jean-Claude Trichet, President of the European Central Bank (ECB), recently suggested that he feels a turning point in the world’s economy is on the horizon.

He delivered this optimistic news at a meeting in Basel, Switzerland for central bankers from the world’s leading economies. Trichet based his assessment on the huge government investment packages currently being implemented in many countries, almost universally low interest rates and increasingly cheaper fuel prices, a trio of economic advantages he feels should have the power to reverse the world’s financial fortunes.

Interest rates are currently at record lows in many countries – the 1.5% rate in the euro zone is the lowest ever (and a huge contrast with the 4.25% just nine months ago) and the Bank of England rate of 0.5% is a historic low with the US Federal rate even lower at 0.25%.

While Trichet recognises that the economic situation is still slowing, he feels that government policies worldwide are strong enough to turn the tide. One of the reasons behind his optimism is that Trichet believes that investors are currently underestimating the significance of government attempts to put their economies back on track.

Many governments have earmarked vast sums of public money to provide financial backup for banks in difficulty or to make major investment in infrastructure. Funds in the US run to US$700 billion including US$250 billion for mortgage holders, Spain has allocated some €3 billion to help boost the economy and employment, and UK government schemes include a ₤200 million mortgage rescue package.

In many countries, the recent implementation of the packages means it is too early to ascertain how effective they have been, but the Vice Governor of the People’s Bank of China, Yi Gang, claims the fiscal-stimulus measures introduced in China have already produced positive effects, perhaps a promising sign for other countries.

“On balance, I think it’s possibly a little premature to predict an upturn in the world economy,” comments Barry Aldridge, Director of Obelisk Private Finance, “but I do believe the massive government rescue packages will have a hugely positive effect.”

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