The global economy is emerging from the financial crisis as a patient
might emerge from a sickness, with some signs of recovery but other causes
for concern. This week, the patient received comprehensive
health evaluations from the World Economic Forum and the World Bank. The prognosis is rather gloomy, particularly for
WEF warns that a world racked by economic disparities and weak global
governance--and "in no position to face ... new shocks"--confronts a
litany of risks including currency and commodity volatility, growing
pension liabilities, and fiscal crises stemming from the tension
between increasingly wealthy and influential emerging economies and
debt-saddled advanced economies. The report adds that a "rapidly rising
global population and growing prosperity are putting unsustainable
pressures on resources," with demand for water, food, and energy
expected to rise by 30 to 50 percent over the next two decades.
World Bank, meanwhile, predicts that "high-income" countries like the
U.S. will grow by under three percent through 2012 while developing
countries will grow at more than double that rate, though they face
risks like tense European financial markets and rising food prices.
Overall, the report indicates that global economic growth will slow
down in 2011.
What should we take away from the reports?
- Most Tragic Problem Is Food and Water, states Douglas McIntyre at 24/7 Wall St, in reference to the WEF report:
Crop production cannot keep up with the predicted rise in demand. The supply of fresh water around the world cannot be increased by the levels which are necessary to offer every thirsty person relief. The result to this broad problem is likely to be a rise in famine that is so great that it challenges the imagination. Some countries like the US may offer aid and food, but even America will find the needs of the world’s hungry beyond its means. And, the US economy may be crippled enough so that the generosity it has shown in decades past cannot be renewed.
- Developing World Will Lead Growth In 2011, says
Eva Pereira at Forbes: "It once was the case that when the first world
caught a cold, the developing world caught the flu. Those days might be
over as developing countries have managed to re-orient more of their
production toward their domestic market in the wake of the downturn."
- Yes, Economic Power Is Shifting East, declares
Larry Elliott at The Guardian. The World Bank report reveals that most
developing countries have recovered from the financial crisis, he
notes. But the more important message is that "this is part
of a clear trend that will see economic power move from west to east
over the next 20 or 30 years. On current trends, the clock will be
turned back to the days before the Industrial Revolution, when China
and India--by virtue of their huge populations--were the biggest
economies in the world."
- While Unemployment Stays High In Developed World, notes
Marketplace's Stephen Beard. The World Bank "is saying that while the
emerging economies will grow strongly this year, they won't grow
strongly enough to lift some of the hardest hit countries like the U.S.
and much of Europe out of their malaise."
- West Needs Structural Change, argues
Daniel Hoffman of Zurich Financial Services, as quoted in The Wall
Street Journal: "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."