Global economy approaching pick-up: G10 Tuesday March 10, 2009, 6:56 am
The global economy is "approaching" a pick-up point as positive elements that could fuel growth have yet to be priced in, G10 central bankers say.
"We have a number of elements that are suggesting that we are approaching the moment where you would have a pick up," European Central Bank head Jean-Claude Trichet said in his capacity as spokesman for the G10 central bankers meeting at the Bank for International Settlements (BIS) on Monday.
"I would say that we are at a level where the positives are not necessarily fully priced in," he said.
He did not specify a turning point but said central bankers would not depart from projections by global institutions, which are forecasting global momentum at close to zero this year before growth in 2010.
Trichet said that there was currently an under-estimation of the positive impact of sharply lower commodities and oil prices, as well as fiscal packages launched by governments.
He also pointed to a "very very strong commitment of authorities ... not to let any systemic institutions go under".
"This is a very very strong commitment which has been taken by executive branches which is not fully priced in by the market," he said.
ALSO Billionaire Warren Buffett said unemployment will likely climb a lot higher depending upon how effective the US policies are, but he remains optimistic over the long term.
Buffett said the American leaders need to support President Barack Obama's efforts to repair the economy because fear is dominating people's behaviour and the economy has basically followed the worst-case scenario he envisioned.
"It's fallen off a cliff," Buffett said on Monday during a live appearance on cable network CNBC. "Not only has the economy slowed down a lot, but people have really changed their habits like I haven't seen."
Buffett said the changes are reflected in the results of Berkshire Hathaway Inc.'s subsidiaries. He said Berkshire's jewellery companies have suffered, but more people have been willing to switch to Geico to save money on car insurance.
He predicted that unemployment will likely climb a lot higher before the recession is done, but he also reiterated his optimistic long-term view: "Everything will be all right. We do have the greatest economic machine that man has ever created."
Fear and confusion have been driving consumer and investor behaviour in recent months, Buffett said.
The nation's leaders need to clear up the confusion before anyone will become more confident, and he said all 535 members of Congress should stop the partisan bickering about solutions.
Buffett said he believes patriotic Republicans and Democrats will realise the nation is engaged in an economic war.
"What is required is a commander-in-chief that's looked at like a commander-in-chief in a time of war," Buffett said.
Whatever the government does to help the economy will likely benefit some people who made poor financial decisions, but Buffett said Americans should realise that everyone is in the same boat.
"The people that behaved well are no doubt going to find themselves taking care of the people who didn't behave well," Buffett said.
The current efforts to help revive the economy are likely to produce inflation that could be worse than what the country suffered through in the late 1970s, Buffett said.
But even though the US will have to pay for current policies with future inflation, Buffett said, the US government still needs to act.
"We're in a big war, and we're going to use money to fight it," he said.
Maintaining faith in America's banking system will be important to restoring the economy's health, Buffett added. He said Obama needs to make it very clear that consumers won't lose money in banks even if more fail.
"If you don't trust where you have your money, the world stops," Buffett said.
A little over a week ago, Buffett released his annual letter to shareholders describing the worst of his 44 years at the helm of Berkshire. The Omaha, Nebraska-based company reported sharply lower profit because of its largely unrealised $US7.5 billion ($A11.7 billion) investment and derivative losses.
Overall, Berkshire's 2008 profit of $US4.99 billion ($A7.8 billion), or $US3,224 ($A5,030) per Class A share, was down 62 per cent from $US13.21 billion ($A20.6 billion), or $US8,548 ($A13,340) per share, in 2007.
Berkshire's fourth-quarter numbers were even worse. Buffett's company reported net income of $US117 million ($A182.6 million), or $US76 ($A118) per share, down 96 per cent from $US2.95 billion ($A4.6 billion), or $US1,904 ($A2,970) per share, a year earlier.
Buffett said he doesn't regret writing a commentary in autumn encouraging people to buy US stocks, but he joked that in hindsight he wishes he had waited a few months to publish the piece. Since that commentary appeared on October 17, the Dow Jones Industrial Average has fallen from 8,852.22 to close at 6,626.94 on Friday.
Buffett stands by his overall advice that owning stocks over time will profit people greater than so-called safe investments.
"Overall, equities are going to do far better than US government bonds at these prices," he said.
Buffett said he doesn't regret investing $US8 billion ($A12.5 billion) of Berkshire's money in investment bank Goldman Sachs Group Inc. and conglomerate General Electric Co. last fall. Both companies gave Berkshire preferred shares paying 10 per cent interest that Buffett said he doesn't think he could get now.
APG Price at posting:
2.9¢ Sentiment: ST Buy Disclosure: Not Held
