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Central bank chief sees signs of a rebound

BASEL, Switzerland — The global economy is still slowing but there are signs that a turning point may be near, top central bankers said on Monday.

European Central Bank President Jean-Claude Trichet, who chaired talks on the global economy at a Bank for International Settlements meeting, said a return of confidence was crucial to getting the economy back on its feet.

“We are in a situation where we still observe a slowing down of the economy,” he said in summing up the discussions in the Swiss city of Basel.

But there were also some positive elements underestimated by investors and financial markets, such as the fall in commodity and oil prices, budget stimulus packages and governments' commitment not to let important financial institutions fail.

“We are identifying a number of elements in the global economy ... that are expansionary,” said Mr. Trichet, who also chairs the Group of 10 central bankers. “We have a number of elements that are suggesting that we are approaching the moment where we would have a pickup.” Major central banks have slashed interest rates and governments have increased spending as the financial market crisis has extended its reach into emerging markets and confirmed major developed economies, including Japan, the United States and the euro zone, in recession.

Mr. Trichet noted that international institutions expected an economic contraction this year in industrialized nations and flat growth globally, before a pick-up in 2010.

He said there was no big chance of deflation at a global level but it was important for central banks to keep inflation expectations anchored.

© The Globe and Mail