World Bank raises alarm about global disparities

The global economy will continue to face serious challenges in 2011, according to the latest reports from the World Bank and World Economic Forum (WEF).

The World Bank’s Global Economic Prospects 2011 report forecasts that, although global GDP expanded by 3.9% in 2010 as the world economy began to recover, growth should slow to 3.3% in 2011.

But continuing growth disguises the most important risk of the coming decade – economic disparity – according to the WEF’s Global Risks 2011 report. (article continues below)

Savings and trade imbalances within and between countries are increasingly unsustainable while unfunded liabilities create extreme long-term pressure on fiscal positions.

The WEF argues that asset prices may collapse as a consequence.

Further risks arise when increases in gross flows of capital from advanced to emerging economies are not matched by the ability of economies to absorb such flows productively.

Capital flows to developing countries picked up in 2010 as investors from high-income countries sought higher yields. Net international equity and bond flows rose by 42% and 30% respectively in 2010.

Additionally, fiscal pressures in advanced economies may accelerate the power shift towards Asia, increasing the risk of geopolitical tensions.

From the perspective of advanced economies, this may lead to an retrenchment from globalisation through protectionist measures and anti-globalisation rhetoric, as demonstrated by the rise of activist groups such as America’s tea party.

Other risks outlined by the report include unsustainable pressures on resources, the threat of cyber-terrorism and an “illegal economy” nexus.