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A fragile recovery – and five shocks that threaten it

This recovery isn't nearly as robust as previous upturns. Japan, Libya, and other crises could undercut it.

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Libyan rebels and paramedics run for cover as artillery shells fired by pro Gadhafi forces land meters ahead outside Brega, Libya, April 5, 2011. The unrest in Libya, if it spreads to other Middle East oil producers, could derail the US recovery.

Altaf Qadri/AP

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Despite the revival of stocks in the past two years and recent optimistic economic data, the US economy remains so fragile that it could easily be driven into another recession. All it would take would be an outside shock – even a moderate one – and there are several candidates lining up.

Normally, the United States is resilient in the face of such shocks, especially when its economy is recovering. But this is no ordinary recovery. It's a two-tier phenomenon, with the fortunes of higher-income folks reviving swiftly while the rest of America is stuck in a slow deleveraging of household balance sheets that will take years to accomplish. This partial rebound makes the economy particularly vulnerable.

What shock could trigger another recession?

Japan: One candidate is the disruptive effects of the Japanese earthquake and tsunami, which may seriously disturb global supply and demand. Japan's trade and current account balances could be driven into negative territory by her need to increase imports to rebuild and curtail exports due to the destruction. Then, Japan would need to import capital and pay much more to finance her huge government debts.

Middle East: More immediate is the turmoil sweeping the Middle East and the roughly 20 percent surge in crude oil prices since mid-February. Concerns about oil supplies from Libya have been augmented by worries about the stability of Bahrain and the potential spillover effects on Saudi Arabia.

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