Global Economic Risks in 2010

The World Economic Forum released the Global Risks 2010, highlighting a number of underlying risks that contributed to and were exacerbated by the financial crisis and global economic downturn. Particularly, fiscal crisis, unemployment, underinvestment in infrastructure – especially in energy and agriculture – and chronic disease are identified as the pivotal areas of risk over the next years.

The report argues that the global financial crisis in 2009 has revealed a fundamental need to change thinking on global risks and how they are managed.

Mr Robert Greenhill, Managing Director and Chief Business Officer at the World Economic Forum, said: “The financial crisis and the ensuing recession have created a more vulnerable environment where unaddressed risks may become tomorrow’s crises.”

In 2010, the global economic recovery has driven up growth and risks of financial systems have moderated though, developed countries are increasingly worried about excessive issue of government bonds in order to rescue banks. Governments need to enact reliable medium-term policies to lower the budget deficit while some need to strengthen the flexible circulation of credit to stimulate growth.

According to the International Monetary Fund, worsening financial revenues and expenditures and quick growing public debts are changing the nature of global risks. Worries about the government debt balance sheets are also giving a rise to all fluctuations.

Investors feared that if solvency of developed countries can be converted into pressures on capital in a short time, it will increase difficulties of short-term loans for state banks of developed countries. This will adversely affect the recovery of personal credits.

Economic experts stressed that too bad financial situations of governments may drive economies to large-scale debt crisis. This is the biggest risk facing the world in 2010. Previously, major economies in the world adopted economic stimulus measures and ensured civil debt to deal with the financial crisis, which led to budget deficit. Although these measures may help hold back economic downturn, financial markets will face more risks of rising debt problems. Therefore, developed countries face higher risks than emerging economies.

John Drzik, Chief Executive of Oliver Wyman, said: Governments’ efforts to stimulate economic development and ward off economic recession make trade deficit unprecedentedly high.

Underinvestment in energy infrastructure has been particularly highlighted in the World Economic Forum’s report. According Mr John Drzik, the recent drop in oil prices has been good for consumers, but has also contributed to a significant cut in much needed investment in energy infrastructure and renewable energy projects. He emphasised “The fragile global economy will make itself more susceptible to oil price-related shocks if this underinvestment continues.”

“We need a vast increase in food production to feed the growing world population, and a billion people are already undernourished. Governments must work together with the private sector to make it happen,” said Raj Singh, Chief Risk Officer at Swiss Re.

However, weather changes threaten food security. Guaranteeing food security becomes a sufficient condition while countries’ joint efforts to protect the environment and restrain impacts of climate changes on human lives are the necessary condition.

The study also suggests that “creeping risks”, such as the development and spread of chronic illnesses within both the developed and developing world, can be vastly underestimated. Dealing with increased numbers of people suffering from diabetes, cancer and cardiovascular diseases drives up health costs while reducing productivity and economic growth.

Finally, through their increasingly complex supply chains and vast distribution networks, corporations are more exposed to problems such as counterfeiting, intellectual property infringement and corruption at all levels.

VCCI

Tags: Global Economic Risks 2010, The World Economic Forum