Markets edgy as Bernanke says outlook still uncertain

Fears remained over a slowdown in the global recovery yesterday after a sharp downgrade in US economic growth triggered fresh market volatility.

The move came as Federal Reserve chairman Ben Bernanke left the door open to further quantitative easing amid fears the US economy could lapse back into recession.

In an address to a gathering of global policymakers at Jackson Hole, Wyoming, Bernanke described the economic outlook as "inherently uncertain" and said the economy "remains vulnerable to unexpected developments".

US government data showed GDP grew at an annualised rate of 1.6 per cent in the second quarter, compared with the 2.4 per cent pace estimated last month. The downgrade was mostly due to the largest surge in imports in 26 years and a slowdown in companies' restocking of goods. It compares with a 3.7 per cent annual growth rate in the opening three months of the year.

While the second-quarter revision was better than many economists had forecast, Wall Street trading was choppy yesterday, with the Dow Jones Industrial Average see-sawing between positive and negative territory.

The US economy - the world's largest - has now grown for four straight quarters, although the annualised growth rate has averaged 2.9 per cent, compared with the 3 per cent necessary to keep unemployment in check.

Samuel Tombs, an economist with Capital Economics, said the GDP figures showed there was "increasing evidence that the global recovery is faltering".

Bernanke raised the prospect of another Fed purchase of securities, most likely government debt or mortgage securities, to drive down rates on mortgages and other debt to spur more spending by Americans.