Global Economic Forecast – what should we expect in 2009?

13 January 2009 in London the World Economic Forum released a report Global Risks 2009 that warns of challenging risks to the global economy in 2009. It identifies deteriorating fiscal positions, a hard landing in China, a collapse in asset prices, gaps in global governance and issues relating to natural resources and climate as the central risks supposed to be faced by the whole world this year.

The main idea of the report is expressed by Sheana Tambourgi, Director and Head of the Global Risk Network at the World Economic Forum, “global risks require a multistakeholder response and cannot be appropriately tackled in isolation.”

The 2009 Global Risks report predicts that massive government of such countries as the US, United Kingdom, France, Italy, Spain and Australia spending vast sums to support financial institutions have already insecure risky fiscal positions. The US, for example, is currently running a deficit equivalent of 4.6% of its GDP. China suffers a slowdown in growth to 6% or below this year, the effect would significantly damage the weakening global economy.
Global equity values have seen a rapid fall of more than 50% on average; the report signals that more pain is expected to be. The vicious circle between declining asset values, write-downs, pressure on the capital position of financial institutions and continued deliberating continues to revolve. Selling equities on a massive scale means that markets are flooded with more assets than they can absorb, triggering further price falls which need to be marked to market, and in turn requiring further capital charges.

The financial crisis has exposed the lack of coordination among policy-makers, regulators and supervisors that would increase transaction and compliance costs and ultimately prove ineffective in the face of the next crisis. And one of the biggest risks is that short-term crisis fighting may induce businesses and governments to lose the long-term perspective on risk.

The report shows that water is critical to generating energy, with 50% of the cost associated with water supply related to energy. The poorest nations are expected to suffer most from climate change. But the private sector can help them adapt to changing weather conditions, for instance weather insurance program running in Malawi with the World Bank.

However, the report, concludes on a positive note stating that 2009 could prove to be an favorable moment to strengthen global governance and make the political restore global financial stability, and focus on the longer term challenges of managing scarce resources and climate change.

Source: The World Economic Forum