MktNews: - The world economic recovery will start "in the course of" 2002 and when it begins it could be stronger than expected, Bank of England Governor Eddie George said as spokesman for the Group of Ten central banks.
The expected decline in global inflation should boost real income and so consumer demand, "and give policy operators more room to act," if needed, George told reporters following the regular monthly G-10 meeting at the Bank for International Settlements here.
But George also warned that brief technical recessions could not be ruled out in some major countries.
"The picture is currently that of a weak economy in the second half of 2001, with this weakness probably extending into the early part of 2002, but we will see the recovery beginning in the course of 2002," George said.
"In my own view, because (the economy) is weaker now, the recovery might be somewhat stronger than we have anticipated," he added.
"Today we talked about a gradual pickup through 2002, and from the (current) starting position we may see that it is obviously stronger (than now expected)," George continued. "But nevertheless we will see a weak second half (in 2001) and beginning 2002 and then we will see the pickup coming later," he added.
George noted that at its last meeting on Sept. 10, the G-10 still anticipated the global recovery would start at the end of this year or early next.
George agreed that despite the expected growth pickup next year, a brief, technical recession was still a possibility in some nations. "Even though the global economy is expected to recover in the course of 2002, recession is a possibility in some countries," he said, without specifying which countries he was referring to.
While he also admitted that the impact on confidence of the terrorist attacks on Sep. 11 "is still kind of uncertain," he stressed that the G-10 sees a global economic outlook that is "fairly robust," with growth returning to trend levels in the medium-term.
"I think that if you look beyond the next year or two, I think there was no sense (among the G-10 central bankers) that the supply side of the global economy had been significantly adversely affected," George said, stressing the "fundamental health" of the world economy.
In the shorter run, the responses of policy makers to the slowdown and the impact of Sept. 11 will have a "strong and positive impact" on the global economy, he argued.
George also noted that oil prices are now below OPEC's target range, which the G-10 central bankers recognised as "helpful" in the current international economic situation. "But I think there is a concern that (oil prices) could fall away if the global economy turns out to be weaker for longer," George added.
The G-10 is also relatively upbeat on the U.S. productivity outlook, seeing no reasons why U.S. productivity growth should fall back to the relatively low rates seen in the early 1990s. They believe that U.S. productivity growth rates between 2.5% and 3% are still possible, George said.
Like the world economy, the G-10 also expect the eurozone economy to start recovering in the course of 2002, even though it had been "clearly affected" by the Sept. 11 attacks, George said.
The group expects to see "more sustained weakness" in Japan, with that nation responding to the global economic pickup with a time lag. The scope for fiscal stimulus in Japan is fairly limited, George added.