The head of the Federal Reserve Ben Bernanke backed a stimulus plan for the flagging US economy yesterday as stock markets worldwide bounced back from recent lows.
Saying the US economy risked a 'protracted slowdown', Bernanke said US lawmakers were right to consider a second stimulus plan this year as activity slows across the country.
His endorsement came after a forecast said the financial crisis could push worldwide unemployment to a record high and as new bank rescue efforts were unveiled in France and Sweden.
'With the economy likely to be weak for several quarters and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate,' Bernanke told a House of Representatives budget committee yesterday.
He was asked to say if the US economy was in recession, but replied only that the there was a 'very serious slowdown in the economy which has very serious consequences for the public.'
The fallout for workers was made clear in the report by the International Labour Organisation (ILO) which warned of a 20-million rise in the number of unemployed worldwide by the end of 2009.
Meanwhile, while the financial crisis has failed to halt China's economic juggernaut, signs that it is not insulated from the global downturn came with the announcement that its growth had slowed to 9% in the third quarter.
It was the first time since 2005 that quarterly growth slipped into single digits and the lowest figure since the second quarter of 2003.
There was also more dire news in the banking industry. Sweden became the latest government to shore up its financial sector, presenting a plan worth €152.2 billion.
The French government said it would inject €10.5 billion into the country's six biggest banks to boost their capital following moves by fellow European countries.
Among the beneficiaries, the biggest bank Credit Agricole will get €3 billion, BNP Paribas will get €2.55 billion and Societe Generale €1.7 billion.
US Treasury Secretary Henry Paulson also gave more details of the US rescue plan, saying banks had until November 14 to apply for some of the $250 billion set aside for capital injections by the government.
Paulson said 'a broad group of banks of all sizes' had shown interest in a capital injection in exchange for preferred shares, or partial nationalisations.
Bernanke urged US lawmakers to weigh the impact of a stimulus package on the US budget deficit, which tripled in the 2007-2008 fiscal year ended September 30 to $455 billion.
