Nov. 11 (Bloomberg) -- The global economy faces risks next year as rising unemployment may hurt banks and asset bubbles in Asia could undermine confidence, World Bank President Robert Zoellick said today.

“The good news is financial markets have broken the fall and there is a sense of revival in those markets,” Zoellick said in a speech in Singapore. “Most expectations are for a relatively slow growth process. I am actually relatively comfortable about the prospects this year but as I look at 2010” we anticipate some risks, he said.

Australia has raised interest rates twice this quarter and India has started to tighten monetary policy as inflation risks return amid a nascent global economic recovery. China’s industrial production and trade surplus climbed in October, and orders for Japanese machinery rose more than twice the pace economists estimated in September, reports today showed.

The recovery won’t be symmetrical around the world, Zoellick said. Governments around the world should follow through with their current stimulus measures even as new stimulus packages may not be necessary, he said at a separate roundtable in Singapore.

Asian nations may still have time before they need to begin tightening policy even as the region, which is expected to grow faster than other parts of the world, may face inflationary pressures, Zoellick said.

Asset Bubbles

The region must be vigilant on asset bubbles, and solutions won’t be easy to determine, he said. Policy makers should consider using other tools before raising interest rates to contain asset price surges, he added.

Chinese policy makers are aware of the risks that may stem from credit growth and asset bubbles, Zoellick said in an interview with Bloomberg Television in Singapore today.

East Asian policy makers that have traditionally followed the Federal Reserve may face challenges as the U.S. central bank pledges to hold interest rates near zero for an “extended period,” Zoellick said.

The global recovery in part has been fuelled by confidence, which may be undermined by asset bubbles, Zoellick said. Banks around the world also face renewed risks as global unemployment rates rise, making it more difficult for consumers to repay loans, he said in his speech.

Hit by Losses

“If you have large scale unemployment remain, say about 10 percent level you have in the U.S., you’re going to see feedback effects,” Zoellick said. “In the U.S. the commercial real estate market is quite soft, and that’s going to go back to the banking system. You’ll see some financial institutions do very well but if they are dealing with the consumer retail market, they’re going to continue to get hit by those losses.”

Developing economies such as China and India can be global growth engines and make up for weaker U.S. consumption, Zoellick said. The Chinese yuan can move to become the global reserve currency over 20 years as the yuan will become more internationalized in 10 to 15 years, he said.

For now, the U.S. dollar’s role as the global reserve currency is secure for some time as gold isn’t as transferable as the dollar as a reserve asset, he said. The euro can also be an alternative reserve currency, he said.

Leaders of the 21-member Asia-Pacific Economic Cooperation will meet in Singapore Nov. 14 and Nov. 15. Zoellick was speaking at a World Bank conference on infrastructure ahead of the APEC summit.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

Last Updated: November 11, 2009 02:27 EST