As economic issues in the United States and reforms in China show, the world still faces much uncertainty even though it is well past the 2008 financial crisis, Deputy Prime Minister Tharman Shanmugaratnam said on Wednesday.
He told the Skybridge Alternatives Conference at Marina Bay Sands that the global economy faces four major sources of risk.
The first source of uncertainty in the world is the US, "still the most important determinant of what happens in the rest of the world", noted DPM Tharman.
"The capital markets are forward-looking, and they will always run ahead. That interaction between the market and policymakers is itself an uncertainty," he said.
Meanwhile, as jobs growth and corporate investment remain sluggish, cyclical problems in the US economy could become structural issues.
Mr Tharman pointed out: "There is a risk that the US economy settles at a level below its previous potential, which means that if you continue with highly accommodative monetary policy, we get financial risk building up without any real economic benefit."
The second issue is China's major structural reforms - one of the most complex exercises of such policy changes in any economy in the past 50 years.
"The complexity of the matter comes from the fact that there are several reforms that have to be taken simultaneously because they interact with each other," Mr Tharman said. These include revising monetary, fiscal, social policies, and shaking up state-owned enterprises.
"China understands the issues well and deeply, but mistakes can happen... Although mistakes can be corrected, the ripple effects will be felt around the world ," Mr Tharman said.
He also noted that emerging economies face challenges. While noting that different economies within the emerging world vary widely, he said they mostly have their fundamentals intact, but need to implement reforms that are more serious than those seen in the past decade, to make it easier for investors to do business in their countries.
Finally, the world's more mature economies face the twin challenges of a stagnating middle class and a growing tension between younger and older generations, Mr Tharman said.
These are problems with no obvious solution, and policymakers have to engage in serious discussions to find solutions.
"If you have sustained stagnation in the mature economies in that broad middle class, it is going to change the global economy. It is going to be hard to sustain the growing middle in the emerging economies. We are not a decoupled world in the true sense."
Commitments to retirement funds for older people have become unaffordable as the pool of the younger population is getting smaller.
"This inter-generational tension is going to grow significantly over the next decade and the decade after." This is due to changing demographics and commitments made when societies were young and growing rapidly that are now found to be unaffordable.
The three-day event, organised by investment management firm Skybridge Capital, ends on Friday.
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