5 factors that could hurt an economic recovery

So much for the green shoots, many economists are now betting on a quick economic recovery and new bull markets in the bourses. Amidst all the green shoots let us examine a few factors that could possibly end up being a factor that affects the recovery.

1.The Oil spike

Crude oil has been surging ever since the talks of economic recovery started doing rounds. Expectations that China will continue to grow at a faster pace and emerging economies will get back to growing ways have lead to the notion that demand for oil will be high. OPEC recently announced that worst of oil crisis may be behind us and expects demand for oil to stabilize and tick up in coming years. Goldman Sachs revised higher its year end target for oil. Also the falling dollar has supported the oil prices. Any further spike in oil prices could end up hurting the prospects of an quick economic recovery.

2. The Swine flu pandemic

WHO raised the flu alert level to six, making it first global pandemic in four decades. Influenza virus typically spread in waves getting stronger with each wave. The second wave that seems to have started has already spread its wings across many nations including India. The World Bank estimated in 2008 that a flu pandemic could cost a damage of $3 trillion to the world trade. Although the swine flu has caused relatively less mortality, any further severity might be a dampener to world trade.

3. Political unrest

Defiant North Korea announced that it will continue to enrich its nuclear capabilities and reportedly is readying itself for a 3rd missile test in spite of UN sanctions and warnings from USA, raising tensions in the region. N Korea has also threatened war if further sanctions were imposed on them. A war is last thing that the world would like to see amidst the financial crisis. In the Middle East, if tensions between Israel and Iran escalate, that would send oil prices soaring again.

4. Rampant inflation

Although not a near term issue, if the economic recovery turns out to be strong and with higher oil prices and monetary easing from central banks around the world, inflation could begin to sky rocket. Higher inflation with stagnant growth will lead to "Stagflation" a period of slow growth with high inflationary pressures.

5. Public debts

Another crisis that looms near the horizon is enormous public debts. Governments around the world borrowed huge amounts of money to steer through the worst financial crisis since the 1930's. It was necessary to save the economy from falling into a deeper hole and to bail out large banks. But in the long run, such enormous debts are unsustainable, already there are worries that some Euro zone nations could default their debts or lose their credit ratings. Unsustainable debts are a cause of worry and needs to be tackled sooner or later.

Prakash