Near-term prospects remain positive but geopolitical concerns and the potential implications for oil prices are a key risk to the global economy, Fitch Ratings said today.

Speaking at a conference in London, Brian Coulton, senior director in Fitch’s sovereign group, noted, “The short-term global economic outlook continues to be favourable in light of the demonstrated resilience of the U.S. economy despite shocks last year, a sustained private sector-led recovery underway in Japan and some improving signs for growth prospects in the euro area.”

Nevertheless a number of downside risks are present, the firm also noted, including that of sharper-than-expected household sector retrenchment in the U.S. — in a climate of unprecedented highs in net household debt and debt service ratios — and a renewed surge in oil prices.

“Uncertainties over the situation Iran have led us to dust off our US$70 per barrel oil price scenario,” Coulton added, amplifying concerns that the moderate slowdown expected for the world economy in 2006 and 2007 could take a less benign path.

“For emerging markets as a whole, we can easily say that they’ve never had it so good. Average credit ratings have never been higher, spreads are extremely low by historical standards and with US bond yields having remained steady, overall market borrowing costs have never been lower,” Coulton said. “But with global risk appetite having scaled new heights and global liquidity now tightening, emerging market borrowers would do well to prepare themselves for higher interest rates.”

Speaking about Latin America, Roger Scher, managing director for Fitch said that sovereigns have benefited from the cyclical upturn in the global economy, with regional GDP growth in recent years above its long-run trend. The region’s external balance sheet has also improved, amid persistent current account surpluses, record foreign exchange reserves, and a full paydown of IMF obligations by a number of countries, he added.

Nevertheless, public debt burdens are higher and GDP growth is significantly lower than in other emerging market regions. Brazil, South America’s largest economy, epitomizes the region’s slow growth dilemma, with real interest rates above 12%, average real GDP growth of 2.2% over the last five years, and a general government debt burden of 75% of GDP,Fitch said. Mexican GDP growth has likewise been unimpressive, averaging 1.8% in the last five years, with the structural reform agenda stymied by political divisions.

Coulton also commented on recent developments in China, pointing to the achievements in banking sector reform and eased fears about a hard economic landing that helped to justify last October’s upgrade of China’s sovereign ratings. Recently announced large-scale upward revisions to GDP data — while underscoring long-standing problems of data quality and transparency in China — would appear likely to ease concerns somewhat about macroeconomic over-investment.