Global recovery prospects 'appear good': Bernanke
US Federal Reserve chief Ben Bernanke said Friday that global prospects for a return to growth from recession appeared good despite financial market strains but cautioned that any expansion would be slow at first.
"After contracting sharply over the past year, economic activity appears to be levelling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good," he told central bankers at a meeting in Jackson Hole, Wyoming.
Bernanke said although fears of financial collapse had receded substantially, critical challenges remained as the world grappled 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 in his speech entitled "Lessons from a Year in Crisis."
The United States is expected to post positive growth in the third quarter after two consecutive quarters of contraction.
Germany and France, Europe's biggest economies, have bounced back with growth in the second quarter after shrinking for the previous four quarters.
The region joined the recovery underway in China and Japan and increasingly elsewhere in Asia.
Looking back at the two-year financial crisis, the US central bank chief said its effects suggested that the resulting global downturn could have been extraordinarily deep and protracted.
"Although we have avoided the worst, difficult challenges still lie ahead," said Bernanke, who took radical steps to contain the contraction of the world's largest economy, including slashing interest rates to virtually zero and pumping billions of new money into the financial system.
"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.
He called on central bankers to "urgently address structural weaknesses in the financial system, in particular in the regulatory framework, to ensure that the enormous costs of the past two years will not be borne again."
For example, he noted that short-term funding spreads in global markets remain a problem even as short-term funding markets were stabilizing.
"Short-term funding markets are functioning more normally, corporate bond issuance has been strong, and activity in some previously moribund securitization markets has picked up," he said.
In addition, although generalized pressures on financial institutions subsided somewhat, government actions to prevent the "disorderly failures of individual, systemically significant institutions" continued to be necessary, he said.
But overall, he said, the policy actions implemented in recent months had helped stabilize a number of key financial markets, both in the United States and abroad.
"Stock prices have partially recovered, and US mortgage rates have declined markedly since last fall," he said.
Bernanke said in the United States particularly, the use of Fed liquidity facilities had declined sharply since the beginning of the year -- "a clear market signal that liquidity pressures are easing and market conditions are normalizing."