Asia exits crisis but risk of unrest lingers

“Although we maintain that the crisis has already inflicted its deepest wounds,its impact will continue to be felt throughout 2010,” the Economist Intelligence Unit said in a report.

The main downside risks to economic stability this year include asset price bubbles,deflationary pressures,and the danger of “an increase in the frequency and intensity of social and political unrest,given increased unemployment,weak growth and impending fiscal austerity measures in many countries,” the EIU said.

Much of the risk is concentrated in Asia.

The EIU rates China in the ‘high risk’ category for social unrest in 2010,upgraded from ‘moderate’ risk in 2009. Also in the high risk category are Thailand,Indonesia,the Philippines,Sri Lanka,Cambodia,Bangladesh and North Korea.

But unrest does not necessarily lead to market meltdown. The key question is whether violence is widespread enough to threaten major political upheaval or to significantly disrupt economic activity. Viewed in these terms,China is less of a risk,but Thailand and the Korean peninsula could be flashpoints for 2010.