Rising unemployment endangers the recovery

Interest rates are unlikely to change today following the Reserve Bank's board meeting.

The board and the staff need to ponder the current state of the major economies and that of Australia's, and also forecasts and risks.

As well as global risks discussed below, there is the risk posed by Australia's labour market, where unemployed and underemployed resources are far larger than official statistics suggest.

Rate hikes anytime soon would exacerbate this issue.

A key question about the international economy is: could the current global economy, or important parts of it, be unstable?

In economics, it is usual to discuss one's expectation or "best guess" about future development and also to articulate potential risks.

For the past 18 months or so, the "best guess" was first of a nasty slowdown, morphing into a "Great Recession" as the International Monetary Fund called it in early March of this year.

The IMF warned on Tuesday that the world was gripped by a "Great Recession" that could throw millions back into poverty and spark civil unrest, as the US appealed for joint action by nations to tackle the crisis.

There has been "joint action" aplenty. Substantial monetary and fiscal expansion has been the rule everywhere, including in Australia.

For the past year, the most discussed risk has been that of the world's financial system tumbling down. This risk was underlined in September last year, when the US declined to save Lehman Brothers. Global credit markets were gripped by fear and bankers lost the trust in other bankers. For a substantial period, the world economy wobbled on its axis.

Other US (and British) banks were bailed out and gradually a measure of trust has been rebuilt among financiers.

Yet nagging concerns remain. European banks own a lot of the debt of bankrupt or severely stretched Eastern European nations, and there is no united European government to lead the bailouts should this become necessary.