MercoPress. South Atlantic News Agency

Recovery on sight, but bumpy road ahead, warns ECB chief

Trichet warns about unemployment and calls for prudence and caution

The European Central Bank declared Thursday that the economic contraction in Europe is coming to an end and kept interest rates on hold at 1%. However, the ECB's president, Jean-Claude Trichet, warned the recovery will be bumpy, especially in the face of high unemployment in Europe which is now 9.5%.

Trichet said ECB officials were in no rush to withdraw emergency stimulus measures that have supported the EU economy during the worst crisis since World War 2.

“There are increasing signs of stabilisation in economic activity in the Euro area and elsewhere. This is consistent with the expectation that the significant contraction in economic activity has come to an end” Mr Trichet told reporters in Frankfurt. But he warned that any recovery was likely to be uneven.

“Uncertainty is very high. It is more of a bumpy road ahead taking into account the complexity of the situation. If I have a message, it's that prudence and caution are still of the essence.”

Trichet made the qualified upbeat comments after announcing that the ECB benchmark interest rate would stay on hold at 1%. At the same time the bank raised its forecast for economic growth to about 0.2%t in 2010 instead of a 0.3% contraction.

The ECB chairman caution also applies to a growing debate around the world that emergency stimulus payments need to be wound back. He told reporters it “isn't time to exit”.

“The worst possible attitude would be to say that now that we see financial markets operating much better, that we are back to normal, back to business as usual,” Mr Trichet said. “It would be absolutely wrong, plain wrong - we have to do the job.”

Mr Trichet will discuss exit strategies and prospects for the global economy when he meets with officials from the Group of 20 nations in London from Friday.