KARACHI, Sept 27: The world economy now stands at a crossroad with unforeseen perils.

First, the risk to the global market that emerges from a major 60-year cyclic of recession and embraces industrial economies of Europe, America and Japan. The United States may not escape a probable cyclic depression. The short-term US recovery, seen by optimists, is 50 per cent Iraq war-driven and both recovery and claimed gains in productivity are jobless ones. Three million jobs have been lost since George Bush became US President.

Second, added to recession is the ballooning US fiscal, trade and current account deficits that is eroding the American contribution (60 per cent in recent years) to global economic growth. Nations heavily dependent on America for investment and trade have to ponder the risks it involves.

Third, like in the years of Great Depression of 1930s, industrial nations may take to protectionism. Fears are being expressed that if the Asians, particularly the Chinese do not revalue their currency, the US may be tempted to restrict its imports from the region. American imports are at $1.4 trillion, more than double the export earnings of $974 billion. The US budget deficit is estimated at six per cent and current account deficit at over five per cent for 2003. Productivity gains have not made American goods competitive in the world market.

Fourth, Asians, particularly Japan and China buy US government bonds to help Washington tide over fiscal and current account deficits in order to sustain their exports. Chinese current investment in American Treasury bills amounts to $290 billion. Private foreign investments in US bonds have plummeted because of low yields.

The US debts may soon become unsustainable as is feared that the national savings rate, now at the lowest ebb, may turn negative. Debt servicing costs are soaring on a five trillion dollar debt that is growing. How long will the Asians take the risk to invest in depreciating the greenback with low yields.

Fifth, the greenback has fallen by eight per cent against currencies of American trading partners and 20 per cent against the euro. The dollar may be allowed to slide gradually to boost exports and remove trade and current account imbalances. There are risks to piling up massive reserves running into hundreds of billion dollars by the central banks in Asia.

Sixth, as in economics, so in politics, the global scenario is fast changing. The world economic growth can no longer be propelled by one single national economy, nor can, as ongoing Iraqi war indicates, global politics be managed by unilateralism. Iraq is proving that as a lone ranger, the US can triumph in conventional war against weak countries but it cannot win peace. The march of events, particularly 9/11, Iraq war and failure at Cancun, is bringing about a power shift in world politics and is raising risks for nations not alert to a fast changing situation.

So far, as it appears, China is playing its cards well and is likely to emerge as the winner despite growing demand of US manufacturers to curb import of Chinese goods. The Chinese access to US markets is balanced by three major factors. Sixty per cent of the country’s exports are accounted by the US, European and Japanese multinationals, which have reallocated their manufacturing facilities to produce cheaper goods for US consumers. Beijing is using dollar earned from exports to finance US fiscal and current account deficits. It may turn out that the US Treasury department and multinationals may not share the views of the US manufacturers catering to the domestic market.

China is also absorbing about two-third of export growth in East Asia. Beijing’s entry into the WTO has placed China in a unique position to lead developing nations in WTO negotiations. Cancun is the beginning. China also supports France, Germany and Russia in their struggle for multilateralism. It has replaced Britain to become the fifth largest economy in the world. China is emerging as powerful independent voice in global affairs for an equitable world order.

It would appear, in a multipolar world, three power centres are taking shape: the European Union; the US with weak support from Japan; and developing states led by China, Brazil and India, the three largest economies in a developing world.