World Bank president Robert Zoellick, speaking before a gathering of business leaders at the Asia Pacific Economic Cooperation (APEC), warned that pitfalls lurked for the global recovery that seems so secure right now.

Zoellick’s worries include large scale and ongoing unemployment in developed nations, rising trade protectionism, potential asset bubbles, and soaring inflation, any of which could damage the fragile recovery and set it back, regionally or globally.

During previous recoveries, nations that thrive from exports, particularly those in Asia, have been assisted by the U.S. consumer’s demand for manufactured goods. However, this time around U.S. retail sales have been hit especially hard, and the high unemployment rate, currently 10.2%, is likely to keep those sales low for an extended length of time.

“In this environment the US consumer is de-leveraging, building savings,” Zoellick  said. “He or she is not going to play the role that they played in the past.”

Export nations therefore must look elsewhere for some means of growth, such as their own consumers and building their infrastructures.

The high unemployment in developed nations will also cause pass-on problems for banks, with ongoing write-offs of consumer debts such as credit card balances and mortgages. The lower demand for retail goods and services is causing stores and providers to close their doors, feeding the cycle and lowering the value of commercial real estate, much of which depends upon rents to pay the bank mortgage. Such secondary issues will continue to inhibit consumer and business lending, slowing the recovery in these areas.

Another potential pass-on problem from the high unemployment in developed nations is trade protectionism. Political pressure may build to safeguard the jobs remaining, inhibiting exports in developing nations and damping the recovery everywhere.

Zoellick also warned that bubbles could potentially form in developing nations, in assets such as real estate and shares markets. “If you have asset bubbles that are not properly dealt with, you could again undermine confidence in 2010,” he said.

His final issue of concern, runaway inflation, is particularly sobering for Asian and Pacific nations. In previous recoveries, the central banks of this region have been able to follow the lead of the U.S. Federal Reserve when it came time to raise interest rates.

However, with U.S. rates likely to remain at emergency low levels until the third or fourth quarter of 2010, the already-recovering economies in Asia and the Pacific cannot afford to wait that long and will need to time their own rate hikes independently. The danger lies between waiting too long and triggering inflation, or acting too soon and strengthening local currencies, making their all-important exports less competitive on the world market.

Source: au.news.yahoo.com