Business World

Deflation is the largest threat faced by the world economy as the squeeze on bank lending persists, said Stephen King, chief economist at HSBC Holdings Plc.

“The biggest single risk is deflation,” he said. “People have underestimated the risk that we might see price and wage declines over the course of the next year. It’s something that is deeply disturbing I think for the central bankers.”

The Federal Reserve and the Bank of England have started printing money to nurture economic growth and prevent deflation from taking hold. Inflation is slowing after crude oil prices fell more than 50 percent over the past year, while rising unemployment weakens consumer spending.

“You’ve got really a big hit to consumer wealth because of continuous falls in house prices,” King said. “You have got a credit crunch which is still persisting.”

Data today suggested the global recession may be easing. Japan’s industrial production jumped the most in 56 years in April and India’s economy expanded more than economists forecast in the first quarter no fax payday loans.

“What we’re seeing is a good old-fashioned kind of inventory rebuild associated with the fact that supply collapsed further than demand over the last 12 months and we’re now seeing a recovery in that supply,” King said. He said that there will be three or four months of good news in industrial production and then “all bets are off.”

Inflation in the euro region slowed to zero for the first time in at least 13 years in May, while prices in the U.S. showed no change from a year earlier in April. The International Monetary Fund last month forecast consumer prices will fall 0.2 percent this year in advanced nations while the world economy shrinks 1.3 percent.

“The worst of it probably is coming to an end in the sense that we’ve got some green shoots here and there,” King said. Still, “the fact of the matter is that demand around the world is still pretty depressed.”

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