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WHILE the global economic environment has begun to stabilise, there are three potential threats that could slow down or derail the recovery, warned Standard & Poor's Asia-Pacific chief economist Subir Gokarn yesterday.
Dr Gokarn cited inflation, high interest rates and subdued overseas demand as the key risks to Asia's export-dependent nations trading their way back to growth.
He told the credit ratings agency's mid-year economic and credit markets outlook that oil and commodity prices, which have shown tendencies to surge beyond levels warranted by the usual constraints of supply and demand, could re-ignite inflation.
And while prices have moderated in recent weeks, the threat of a surge similar to the one seen in the first half of last year remains, he added.
Dr Gokarn, who is based in India, outlined how governments could act to curb rapidly rising inflation, a grave threat to any recovery.
'Central banks would feel pressured to move to a tightening of monetary stance sooner than would be warranted by fundamental factors, and this could forestall a recovery,' he said. This means reducing the supply of money, potentially making it more expensive for borrowing to take place.
Dr Gokarn also said interest rates have recently risen quite sharply across the Asia-Pacific region as governments have borrowed to finance their stimulus packages. And since the sustainability of the recovery depends on private demand bouncing back, high interest rates could hinder the transition from public to private spending, he added.
He also stressed how a full recovery will depend on a revival in exports to the United States and Europe.
'To some extent, domestic and regional demand are driving the recovery now. To reinforce it, we'll need to see exports return,' he said.
'We're on the road to recovery. It's the combined impact as of now of monetary, fiscal and regional integration, but I don't think we should underestimate or ignore the risks.'
Dr David Wyss, S&P's global chief economist, told the briefing that the US is likely to come out of recession by next month, and that he does not see a double-dip scenario.
This happens when GDP growth slides back to negative after a quarter or two of positive growth.
GABRIEL CHEN
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