Singapore PM says US, EU threaten global economy

Economic problems in the U.S. and Europe pose a serious risk to world growth, Singapore's prime minister said Sunday.

"America and Europe have major problems, still unresolved," Lee Hsien Loong said in a speech. "There's quite a possibility that the world will go into another recession."

Singapore is the financial services hub of Southeast Asia and one of the world's richest countries. Lee's comments are his most pessimistic on the global economy so far this year.

Global stock and commodities markets have plunged this month amid investor fears that the U.S. could be slipping into its second recession in three years and Europe's debt crisis could deepen.

Lee said the first-ever downgrade of the U.S. debt rating by Standard and Poor's earlier this month reflected the country's unsustainable debt and deficit growth levels and the inability of political leaders to agree on a solution.

"If they don't correct it, they're heading for trouble," Lee said. "But they're not able to correct it because there are deep divisions between the Democrats and the Republicans."

"The real issue is investors around the world lack confidence that governments will be able to make the hard decisions."

The debt crisis in Greece, Ireland, Portugal, Spain and Italy threatens to undermine European banks which have bought bonds from those countries, Lee said.

Singapore's economy suffered a brief, sharp recession in the first half of 2009, but rebounded to grow 15 percent last year and 4.9 percent in the first half of this year. The city-state of 5 million people depends on finance, tourism and manufacturing and is one of the most sensitive countries in Asia to fluctuations in external consumer demand.