The world economy is no longer in freefall but it is still contracting and vigilance remains necessary, European Central Bank (ECB) President Jean-Claude Trichet said on Friday.

"We are coming out of the period of freefall but we are still seeing a fall (in economic activity) and we should guard against too much optimism," Trichet said during an interview with France's RTL radio.

He was speaking a day after the ECB's Governing Council left the key interest rate unchanged at 1.0 per cent.

Trichet said ECB action since the acute financial turmoil of September 2008 had been successful in staving off a bigger disaster and the central bank's message to euro zone banks was that they should do their job, which was to lend to the real economy.

"To be fair, there has been a severe economic downturn so demand for credit has diminished ... but from our point of view there are still obstacles to the offer of credit, and that's where our message to banks is that they should live up to their responsibilities.

"If we took the decisions we did, it was for the real economy to be adequately financed," he said.

Turning to the issue of traders' bonuses, which have caused controversy in France in recent days since news emerged of a 1 billion euro bonus provision at BNP Paribas, Trichet said bonuses should vary according to what markets were doing.

He said traders' fixed pay should be "modest" and it was normal and appropriate that it should be complemented by a bonus.

The key point, he said, was that bonuses should not systematically be large, but should vary according to whether the markets were in a phase of expansion or shrinkage. – Reuters