Asian currencies will rise “significantly” over time as the region leads the global recovery, but downside risks are growing and could drag the world back into recession, a top official of Singapore’s sovereign wealth fund said Friday.

“The economic recovery, while real, is fragile and there is a risk that negative shocks could push the global economy towards a recession sooner than expected,” said Tony Tan, deputy chairman of the Government of Singapore Investment Corp.

The recovery should continue more slowly next year but it is threatened by “the turmoil in Europe,” continued unwinding of debt in the U.S. and “protectionist pressures in many countries,” Tan told a seminar.

GIC manages Singapore’s foreign-exchange reserves. It is the world’s fourth-largest sovereign fund in terms of funds managed, according to Deutsche Bank. Its portfolio stands at more than S$250 billion (US$180 billion).

Emerging economies, especially in Asia, will perform strongest as the region has benefited from the pick-up in global trade and manufacturing, but at the same time Asia is likely to shift away from its reliance on exports and more toward more domestic demand, Tan said.

“Asia’s economic rebalancing will, over time, result in significantly stronger currencies,” as productivity and real wages rise, while the region’s growth prospects attract foreign capital, he said.

Asia excluding Japan may grow 8% this year, with giants China and India expanding 8%-10%, Tan said, forecasting U.S. growth will moderate in the second half to a 2%-3% pace, while Europe grows around 1%.

Policymakers in emerging economies must steer between taming inflation and preventing asset bubbles on the one hand, while also not withdrawing fiscal and monetary stimulus too quickly, Tan said.

“The current recovery is being sustained by unprecedented policy support,” he said.

“Changes in policies or mistakes will thus have a significant impact on the global economic and financial environment,” Tan said. “However, policymakers run the risk of creating excessive inflation over the medium term, if emergency levels of policy stimulus are left unchanged for too long.”