(EnergyAsia, December 14, Monday) --- The world should stay alert to the possibility of inflation as a commodities-hungry China continues to drive the global economic recovery, said Societe Generale’s (SG) chief economist for Asia, Glenn Maguire, at a media event last week.

China’s strong investment growth of more than 50% led by the government’s stimulus programme is expected to boost the economy by more than 10% in 2010.

For now, China is focusing on boosting its domestic demand to absorb the surplus production capacity in its export-oriented economy.

SG said the pick-up in auto production and demand in Asia as well as the massive infrastructure investment in China helped the region’s economy rebound. The bank added that the Asian supply chain has adjusted quickly to the pick-up in auto demand and China’s investment spending.

South Korea, Taiwan, Japan, Australia and Brazil were cited as the key beneficiaries of China’s recent growth.

The bank said China’s growth requires it to sharply increase its consumption and import of copper, coal, iron ore, oil and gas, and other commodities.  The country’s investment policy is increasingly having a significant impact on the global capital expenditure cycle.

Mr Maguire advised that the world should be vigilant to the possibility of inflation. While this looks remote under current circumstance, he warned that rising demand for food will likely push up prices, forcing Asian central banks to tighten monetary policies.

While SG is optimistic the global economy no longer requires “crutches”, it also said that there are doubts as to whether the recovery is sustainable without continued massive fiscal and monetary support that have been put in place since the Lehman Brothers bankruptcy in September 2008.

Mr Maquire is predicting the world economy to stage a modest but shaky recovery as governments gradually withdraw policy and monetary supports.