Year Of The Rabbit Scampers In

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The Chinese New Year began this week. It's the Year of the Rabbit, and some say that means a calmer, maybe even luckier year ahead.

SCOTT SIMON, host:

Of course, we've seen days of chaos and violence in Egypt this week - almost like a revolution in the heart of the Arab world. Major oil-producing countries lie to the east and west and the country sits astride the Suez Canal, and yet so far there's little sign that the upheaval in Egypt is producing jitters in the world economy.

NPR's Tom Gjelten explores why that may be and whether there are troubles still to come.

TOM GJELTEN: The stock market fell sharply when the crowds first took the streets in Egypt, but this week it rebounded. The price of oil has risen since the protests began, but not dramatically.

Bhushan Bahree is a senior director at IHS Cambridge Energy Research Associates.

Mr. BHUSHAN BAHREE (Senior Middle East Director, IHS Cambridge Energy Research Associates): Largely, people have this wait-and-see attitude. Just follow it closely. There is anxiety but there's also a lot of restraint in the markets. They're not sort of suddenly running out and doing things without knowing what they do.

GJELTEN: There are good reasons not to panic. The global economy is fundamentally in pretty good shape. The initial shock in the markets was due to worries the Suez Canal might be closed. When that didn't happen, investors breathed a sigh of relief. But too soon?

Mr. DAVID GORDON (Head of Research and Director of Global Macro Analysis, Eurasia Group): The market may be underestimating the longer-term impact of this.

GJELTEN: David Gordon is global director of research at the Eurasia Group, a risk analysis firm. He thinks traders should perhaps be more nervous about Egypt than they are. The authoritarian regimes in the Middle East that could yet be affected by the turmoil in Egypt play pretty important roles in the global economy. If the people in those countries start demanding more democracy, there could be some short-term instability, Gordon says, a disruption of oil supplies and a real jolt to the global economy.

Mr. GORDON: Over the medium term, more openness, more participatory political systems will have an economic benefit, but that's not necessarily what you'll see at first.

GJELTEN: One reason for investors to follow political developments closely in the Middle East these days is that they're not occurring in a vacuum. It's not just a matter of people being frustrated by stolen elections and government corruption. There's high unemployment across the region, and just this week the U.N.'s Food and Agriculture Organization reported that food prices are at a record high.

Abdolreza Abbassian, the FAO's food and grains expert, said prices started rising last August and have gone up every month since.

Mr. ABDOLREZA ABBASSIAN (Senior Grains Economist, U.N. Food and Agriculture Organization): In December, in fact, we already had the first, I would say, record high. And in January it seemed that it continued further up - another 3.5 percent gain in January.

GJELTEN: the head of the FAO yesterday warned of a food crisis ahead. Abdolreza Abbassian points to the last time food prices rose like this in 2008.

Mr. ABBASSIAN: In some markets, the urban population simply could not afford those prices and it showed its discontent.

GJELTEN: That discontent is now returning and this time people might be tempted to follow the example of the protests in Tunisia and Egypt. And who knows where it might lead? The Chinese government is clearly unnerved by what's happening in Egypt. The news is withheld from the Chinese people. There's also Saudi Arabia, Russia, even Venezuela.

Around the world, economic assessments suddenly have to take into consideration at least the risk of political upheaval. And if there's one thing we've learned about investors in the last five years, is that they're not very good about judging risk.

Robert Jenkins, chief executive of Combinatorics Capital, runs through the previous underestimated risks: subprime credit, overleveraging, government debt.

Mr. ROBERT JENKINS (Chief Executive Officer, Combinatorics Capital): Welcome to 2011, the last piece of the puzzle: geopolitical risk. And the profession has behind the curve in each and every step of the way in understanding the risks they were taking, and geopolitical risk is no exception.

GJELTEN: It's way too soon to say what will happen next in Egypt, in the Middle East or beyond - maybe the anti-government protests will peter out. But if they don't, if they gain momentum and governments topple, the global economy could be affected in ways not yet anticipated by global investors.

Tom Gjelten, NPR News, Washington.

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