Global warning for UK on slump

JUST eight months after the terrorist attacks that threatened to pull the developed world into recession, economic spring is bursting out across the northern hemisphere.

American prospects are brightening, the sluggish eurozone is stirring and confident British consumers have shrugged off a tax-raising Budget. But beyond the cosy confines of the wealthy Western world, an alarming number of economic crises have flared up.

Their causes vary, but all share two features. First, they seem a long way away. And second, they could each blot out the economic sunshine in which Middle Britain is basking.

In Latin America, Venezuela and Argentina are in chaos. Venezuela's radical president, Hugo Chavez - who wants to nationalise banking and farming - was deposed on 12 April, only to return on 14 April. Now the world's fifth-largest oil producer is deeply divided between 'Chavistas' and the president's opponents. Serious disruption to its oil output would put 10p on a litre of petrol in Britain.

Argentina's turmoil was sparked by quite different policies to those of Chavez - the peso was tied to the US dollar and the government intoned free-market orthodoxies. In January, a punishing recession forced Argentina to devalue, slap controls on money movements and shut its banks as it grappled with $141bn external debt. So far, investors have not stampeded out of South America, but turbulence at either end of the continent could change all that, tipping giant Brazil into crisis.

Southern Africa's problems are largely confined to Zimbabwe, where the economy has collapsed as Robert Mugabe's ruling party wages war on white farmers and Asian business people. But if Zimbabwe's strife spread to neighbouring South Africa, chaos would erupt on a wider stage. As it is, British passports are held by 25,000 Zimbabweans, who could arrive here at any time.

In the Far East, three one-time 'dragons' - Taiwan, Hong Kong and Singapore - have lost their fire after years of over-reliance on electronics-manufacture and exports to the US. Each dragon sits on a deep fault-line: the first two between China and its satellites, and Singapore between the Chinese and the Malay/Muslim worlds.

Blazing brighter than all these flashpoints is the oil-rich Middle East, where conflict between Israelis and Palestinians and looming American attacks on Iraq threaten an earth-shaking economic shock.

Julian Jessop, analyst at Standard Chartered bank, said: 'These crises could hit us in two ways. Firstly, they could pull down a major British or European bank exposed in the troubled region, sending shock waves through our markets. Secondly, they could make sterling a safe-haven currency, thus pushing its value higher and strangling exports.' Peter Dixon, economist at Commerzbank, said: 'Latin America is the biggest worry. Spanish banks are heavily exposed - their problems could become our problems.'

For Trevor Williams, analyst at Lloyds TSB, the Middle East is the deadliest flashpoint. He said: 'An oil-price shock relating to conflict there would be by far the most worrying development.'