Eurozone crisis could spill-over to the US

Despite the depressed economic conditions, there is no protracted recession or major financial crisis in Europe, however if the Eurozone crisis escalates, there could be spillover risks to US economy, according to a regional ratings expert. "Protracted economic slowdown and health of the banking sector could impact growth, risk perception and funding availability, said Managing Director - South East Asia of Standard and Poors Rating Services - Surinder D Kathpalia. He was the keynote speaker at a forum jointly organized by the Institute of Chartered Accountants of Sri Lanka and RAM Ratings Lanka Ltd on 'Rising Global Risks Cloud Asian Outlook' in Colombo last week. In remarks released to the media by the Colombo accountancy institute, he was quoted as saying that abrupt trade/capital controls, protectionism measures, idiosyncratic political risks and risk of asset bubbles would add to potential policy mistakes in tackling the rising risks.

Discussing the Asian outlook, he said that Asia felt the tremors from Europe in the second half of 2011 compounded by sensitivity of the region to capital flows, trade impact more pronounced in open economies, global risk appetite and liquidity matter that even impacted the relatively domestically driven economies, oil sensitively of the region and rising oil price resulted from political instability in the Middle East etc.

He said that in a nutshell, a country's ability and willingness to honour financial obligations impact the sovereign rating and most Asian economies would remain relatively benign in this sphere, owing to economic fiscal and external resilience, but risks have intensified; policy challenges are acute; and the likelihood of the downside scenario has increased. He called for political leadership which is a critical factor in policymaking and dealing with some of the uncertainties.