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Europe

ECB, IMF See Signs of Recovery in 2010 as Interest Rates Drop

The European Central Bank and the IMF said they expected the current recession would give way to an economic recovery next year. A cut in interest rates and liquidity guarantees should spur growth.

Euro symbol and ECB tower in Frankfurt

Analysts expect the euro zone's prime rates to be slashed further

The global financial crisis should give way to an economic recovery starting next year according to the European Central Bank's head Jean-Claude Trichet. He predicted a "moderate" recovery in 2010.

"The year 2009 will be very, very difficult," he told French radio station Europe 1. "At the same time, there is a general consensus between all public and private institutions that 2010 may be the year of moderate recovery in growth."

Earlier this month, the central bank slashed euro zone prime lending rate to a record low of 1.5 percent to stimulate spending. Trichet said he had not decided whether the current benchmark would be cut further. Analysts and traders told Reuters news agency that they expected the ECB to reduce rates to 1 percent or less by the middle of this year.

Central banks in non-euro industrial nations such as the United States, Japan, Britain and Switzerland have already cut their official rates to nearly zero in a bid to stimulate their struggling economies.

ECB guarantees unlimited liquidity to banks

ECB head Jean-Claude Trichet with euro symbol in background and his hand to his ear

Could that be the sound of a recovery?

The ECB's focus has been on providing unlimited liquidity to banks in an effort to spur lending.

"In the context of the euro area, guaranteeing firms and households a steady access to credit largely means ensuring the banking system has appropriate liquidity," said Trichet.

He defended the approach against criticisms that euro interest rates are still too high by noting that the 16 euro-zone countries, which share the European currency, and the United States have "significantly different financial structures."

The US economy is driven more by borrowing in more competitive financial markets whereas the euro zone gets more of its funding from banks.

US also expects recovery in 2010

Federal Reserve Board chairman Ben Bernanke

Bernanke says he sees "green shoots" of recovery on the horizon

Washington's IMF deputy John Lipsky reiterated Trichet's comments, saying that he also expected the global economy to contract this year, but a "return to positive growth in the course of next year."

US Federal Reserve Chairman Ben Bernanke had also said in earlier television interview on Sunday that the US could start see "green shoots" of recovery next year.

The crisis has triggered the worst recession in decades for Germany, the euro zone's biggest economy and world's leading exporter, but the outlook could brighten due to a rise in investor confidence, according to experts.

"The bottom of the recession is likely to be reached this summer," Wolfgang Franz, head of the ZEW institute, which compiling the confidence index, told the AFP news agency.

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