Wednesday, January 9, 2008

US Recession Seen

US Recession Seen As Top Global Threat

By Frank Jordans, Ap | 9 January 2008

GENEVA (Jan. 9)— A sharp downturn in the global economy is the most likely and the most serious threat to the world in 2008, according to the "Global Risks 2008" report released Wednesday by the World Economic Forum. Fears of a U.S. recession coupled with a sudden spike in oil prices replaced terrorism, pandemic disease outbreaks, and short-term disasters, e.g., resulting from climate change, as the issues global business leaders are most worried about.

The report, which is based on workshops involving corporate leaders, professors and risk analysts, also listed dwindling food supplies as a growing concern. "A recession in the United States cannot be excluded in the year ahead, [and] …economists are divided on whether domestic-led growth in Asian markets is sufficient to drive the global economy." The report coincides with a World Bank study released Wednesday that also expressed concern about the faltering U.S. housing market and its impact on global financial markets.

The WEF report said changes in the global financial system over the past years may have made it more susceptible to instability during periods of crisis. "The complexity and near infinite feedback loops of the modern financial system have exposed it to a small risk of very large systemic shocks," said the 54-page report, which was published by the Forum in collaboration with Marsh & McLennan Companies, Inc., Citigroup Inc., Swiss Reinsurance Co., Zurich Financial and the Wharton School at the University of Pennsylvania.

Losses to banks in markets such as Germany and Britain as a result of the U.S. subprime mortgage crisis showed how vulnerable the global financial system now is to sudden, unforeseen risks. The world economy is also threatened by the high cost of oil, particularly if prices rise sharply as a result of political crises or natural disasters, it said. "Over the 10-year horizon of this report there are few reasons to believe that energy prices will fall significantly and there are several reasons to believe that energy prices may rise."

The third major risk— dwindling food supplies— has become an issue not just for developing nations but also for rich countries, the report said, citing steep price increases for staple foods over the past year. "There is considerable uncertainty as to whether food insecurity in 2007 is the result of short-term conditions … or whether a more fundamental change is taking place." "Policy-makers may have to return to thinking about food as a strategic asset … the resilience of the worlds food system will be severely tested in the next few years."

The report, released two weeks before the Forum's annual gathering in the Swiss resort of Davos, also cited a slowing of economic growth in China to 6 percent, the cost of chronic diseases in the developed world, and the uncertain political situation in the Middle East as major concerns for 2008.



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