Jan. 12, 2011, 8:27 a.m. EST
By William L. Watts, MarketWatch
Lack of coordination seen as key global risk
World Economic Forum: Economy increasingly vulnerable to shocks
LONDON (MarketWatch) — The inability of world leaders to identify and address potential crises, along with the growing gap between rich and poor, present the biggest risks to the global economy, the World Economic Forum said in a report released Wednesday.
The financial crisis has drained national treasuries and households, leaving the world more vulnerable to increasingly fast-moving crises than at any time in the last several decades, said Robert Greenhill, chief business officer of the World Economic Forum at a press conference.
The WEF is a Geneva-based think tank best known for its high-profile annual gatherings of business and political leaders in Davos, Switzerland, each January.
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“Twentieth century systems are failing to manage 21st century risks,” Greenhill said. “We need new networked systems to identify and address global risks before they become global crises.”
The failure of the Doha round of trade talks to produce a global agreement and the lack of international agreement at the Copenhagen Conference on climate change are symptoms of “global governance” shortcomings, the report said.
Meanwhile, the Group of 20 nations proved adept at responding to the financial crisis, but have yet to show they can address problems before they balloon into full-fledged crises, the report said.
WEF’s annual report on global risks said growing economic disparity within societies as well as across societies also presents a threat to the economy.
“Politically, there are signs of resurgent nationalism and populism as well as social fragmentation,” the report said. “There is also a growing divergence of opinion between countries on how to promote sustainable, inclusive growth.”
Fiscal crises in developed nations as well as volatile food and commodity prices are key macroeconomic risks, the report said.
“Current fiscal policies are unsustainable in most industrialized economies. In the absence of far-reaching structural corrections, there will be a high risk of sovereign defaults,” said Daniel Hofmann, chief economist at Zurich Financial Services.
Meanwhile, the world appears to have entered a period of increased volatility in commodity prices, while fiscal deficits threaten investments in infrastructure needed to improve access to and availability of food, water and.....Read more
