Finance Minister Tharman Shanmugaratnam warned that major uncertainties across the world could significantly dampen global growth.
While most market analyses saw limited impact on global and regional economies after the Japan crisis, the Minister said the triple disaster in Japan, coupled with the continuing turmoil in the Middle East, creates “very significant uncertainties” for the world at a time when economic recovery in developed nations remain volatile and inflation is on the rise across East Asia.
“We have to expect further volatility and possibly an increase in oil, gas and other commodity prices over the next year and possibly beyond,” said Mr. Tharman, adding that new uncertainties can combine and interact “in unpredictable ways”.
Conventional wisdom says that economic recovery will be spurred by rebuilding after a natural disaster, beyond the immediate loss of life and output.
While there is no doubt that Japan is heading into a reconstruction period, Mr. Tharman said the catastrophe will surely have a negative impact on global growth, “not just immediately but in the months and quarters to come”.
With nuclear power providing 25 percent of Japan’s electricity needs, he said that the conclusion of the triple disaster will likely increase the demand for oil, gas and metals like steel in Japan, as it rebuilds and rises again.
“So we are likely to see an upward push in commodity prices coming from increased demand, and this adds to the supply-side shocks that we’ve seen in the Middle East, where the uprisings pose risks of disruptions in oil supply.”
In addition, weak economic recovery in Europe and the US will “add to the complications” arising from the Japanese and Middle-eastern crises and with Asia’s inflation rate rising, the region will likely continue to implement tighter macroeconomic policies in the next few years.
“None of these risks are preordained,” he said. “But it would be prudent to expect that some of these risks will materialise and that there will be an interaction between these risks.”
He added that the result will be softer global economic growth, with no region in the world immune to the slowdown.