Trichet: Global growth set to continue

THE recent financial market correction is unlikely to hit the global economy, but it is a reminder of the risks inherent in markets, central bankers from leading economies agreed yesterday.

Group of 10 chairman Jean-Claude Trichet said the central bankers expected dynamic global economic growth to continue, and he dismissed the prospect of a recession in the US.

Mr Trichet described the markets slide, which began late last month, as a correction and said this “episode” did not appear to have been triggered by economic fundamentals.

“We do not observe that it will or should trigger a correction in the real economy,” he told a news conference, summing up the central bankers’ meeting in Basel.

But he added: “In an environment where risk appetite was historically high, and where there was some signs of underpricing of risks in a large number of markets, this episode has ... been a useful reminder that there are risks in all markets, two-way risks in all markets.”

The week-long sell-off in world stocks and sharp moves in the global foreign exchange market began on February 26, sparked by fears of a sharp US slowdown and a plunge in Chinese stocks.

That day Shanghai stocks fell nearly 9%, erasing about $140 billion in their biggest fall for a decade.

China’s deputy central bank governor Wu Xiaoling said the sell-off in the Shanghai market was a natural process and the prospects for the world’s fourth largest economy were good.

Asked about investor sentiment after the stocks sell-off, Mr Wu said: “It’s natural in the development of the markets. Investor behaviour is more rationalised.”

European stock markets have recovered somewhat but remain lower than where they were on February 26, partly weighed down by lingering concerns about the US mortgage market.

Mr Trichet noted that the US Federal Reserve saw an “orderly slowing” in the world’s largest economy, brushing off a question about former Fed chairman Alan Greenspan’s warning that a recession was possible. “We did not envisage the event that you have been mentioning, so no recession,” he said.

Central bankers had agreed the correction was marked by a rapid spillover into all markets and high trading volumes. But Mr Trichet said market infrastructure had coped well with what he called a “genuine market correction”, where markets which had risen the most fell the most.

Mr Trichet, who last week oversaw a rise in euro zone interest rates to 3.75%, said central bankers also agreed they could not relax on inflation.

“(The) general observation ... from the inflation standpoint is that it is certainly not the time for complacency,” Mr Trichet said.

Saudi Arabia’s central bank governor also urged the need for vigilance on markets although the global economy was in better shape than many had thought.