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Risk To World Economy Rises From Climate And Disease

The headquarters of the reinsurer Swiss Re, one of the authors of the new report.
by Peter Capella
Geneva (AFP) Jan 10, 2007
The world economy is under growing threat from risks such as climate change, terrorism, pandemics and oil prices because of inadequate action by governments and business, a network of experts said on Wednesday. A report by the World Economic Forum, the reinsurer Swiss Re, Citigroup bank and US broker Marsh and McLennan warned of "a fundamental disconnect between risk and mitigation". It said levels of risk were rising in almost all of the 23 categories on which the network had focused over the last year.

"But mechanisms in place to manage and mitigate risk at the level of businesses, governments and global governance are inadequate," it added, warning that the global economy remained vulnerable despite unprecedented expansion.

From the range of economic, environmental, geopolitical, societal and technological threats, the "Global Risks 2007" report pinpointed climate change as "one of the defining challenges of the 21st century".

It said climate change and associated severe storms, water shortages or rising sea levels would have an impact "far beyond the environment".

While effective measures to mitigate global warming could also improve resilience to oil price shocks by diversifying energy supply, the report said, ineffective steps "will almost certainly be a factor in major interstate and civl wars within the next 50 years".

Recent improvements, such as better international cooperation against terrorism, measures against a potential flu pandemic, or better financial risk management in emerging markets, were dismissed as tactical gains.

"The tactical gains may be illusory and are certainly temporary," the report said, warning that they could swiftly and catastrophically be reversed unless the root causes of major threats are tackled.

Major risks to human life over the next 10 years include growing disease, with potentially more than 1.0 million new deaths, wars, loss of freshwater, and at least 8,000 to 40,000 deaths linked to terrorism or transnational crime.

The likelihood of an asset price collapse costing more than 1.0 trillion dollars (770 billion euros) was rated at the lower end of a scale of 10 to 20 percent.

An oil price shock or a hard landing for China's economy were further up the scale of probability and expected to cost the world 250 billion to 1.0 trillion dollars each.

The report examined three "plausible" scenarios, and insisted that cooperation between the United States and China was crucial.

They included the emergence of pandemic flu in Asia in 2008, which grounds flights in Southeast Asia, holds up cargo shipments, triggers a financial chain reaction after a hedge fund collapse and leads to growing militarisation of governments and tensions in Asia.

In turn, fears of cross border movements feed a backlash against free trade before the disease is eventually contained by delayed distribution of a new vaccine in summer 2009, after at least 1.0 million deaths.

In another scenario, a series of chain reactions to storms, floods and climate change starting in 2007 prompt unrest in China, a burst in the US housing bubble, financial upheaval, radical steps in the US to produce biofuels locally, and rush on nuclear power in developing countries.

An oil price shock caused by attacks on tankers in the Straits of Malacca in 2008 drives oil above 150 dollars a barrel, causes huge geopolitical shifts in power, a recession, and efforts to mitigate climate change collapse.

The report recommended that governments and companies form "coalitions of the willing" to forge ahead with tackling major risks at international level, rather than simply wait to achieve a consensus.

Recent talks on the next stage of of the Kyoto Protocol on Climate Change, which sets caps on damaging carbon emissions, have foundered because of further disagreements between states.

Source: Agence France-Presse

Related Links
World Economic Forum
Swiss Re
Citigroup bank
Marsh and McLennan
The Economy

Japan Calls For New System To Manage Global Environment
Washington (AFP) Jan 08, 2007
Japanese Finance Minister Koji Omi called Monday for a "new" and "practical" system to manage the global environment that went beyond the Kyoto Protocol and included the United States, China and India. He said that the Kyoto Protocol covered only about 30 percent of the world's total current carbon emissions and that the ratio was projected to decline further as emissions from developing countries increased.

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