Public debt tops global concerns

The public debt crisis emerged as the top trend likely to impact the global economy in the next 12 to 18 months, according to a survey of the World Economic Forum’s Global Agenda Councils released this morning in the UAE.

The results, presented during the opening of the Summit of the Global Agenda in Abu Dhabi, also identified the following as important trends facing the global agenda in 2012: uncertain economic outlook, global power shifts, digital revolution, political entrenchments, instability of financial markets, scarcity of resources, climate change, and unemployment and inequality.

“The single most important global trend – the public debt crisis – shows the increasing concern of the debt situation in the US, Japan and Europe, and the fear of this trend cascading into other regions,” said Børge Brende, Managing Director, Government Relations and Constituents Engagement, World Economic Forum.

“It is clear that the world is in need of new models to address the challenges that were identified in this survey. The Summit on the Global Agenda gives this group of world experts the opportunity to develop and test exactly such new ideas and models for change.”

“A year ago, we thought we were struggling with post-crisis problems: now we seem back in crisis mode, but with a difference,” said Howard Davies, Professor of Practice, Fondation Nationale des Sciences Politiques (Sciences Po), France, who maintains that the current public debt crisis is a direct result of governments bailing out their private sectors with multibillion-dollar handouts during the 2008 crisis.

“The 2008 meltdown centred on excessive leverage in the financial sector, which threatened to tip the world into a depression, not just a recession. Governments did then what they had to do, and allowed fiscal policy to take the strain of sustaining demand,” he said.

“The consequence in many places was that the debt problem has been passed from the private to the public sector. Now governments, especially in Europe, are struggling to gain control of their fiscal positions, at a time when the economy remains weak. That struggle may take some years to resolve,” he said.

Some of the other WEF council members also see the public debt crisis as an all-consuming black hole that threatens to engulf the process of globalisation. “Decline in financial health in the Western world and the looming debt crisis across Western nations is the single biggest threat to globalization, and possibly can lead to major countries going into a shell due to domestic compulsions and job security. International trade patterns may be affected if this happens in the next one-to-two years,” said one unnamed WEF council member.

The uncertain economic outlook, instability of financial markets and the unemployment crisis were the other economic trends at the top the global agenda.

“After being lulled into a false sense of security during the so-called great moderation, the financial crisis of 2008/2009 was a shock to the way people viewed the economic world,” said Randall S. Kroszner, Booth School of Business, University of Chicago, and former US Fed Governor.

“With recovery in late 2009 and 2010, many thought the crisis had been contained and put behind us. Recent events and market activity, however, illustrate that the actual and potential volatility of financial markets is likely to remain elevated for some time,” he said.

“Neither the macroeconomic nor the regulatory policy responses have provided confidence that the official sector will mitigate rather than contribute to instability going forward. A reversal of the current focus on short-term fixes rather to fundamental long-term pro-growth reforms will be necessary to change the perception of trend toward uncertain economic outlook,” Kroszner added.

“Unemployment is one of the most serious issues facing the world today. Not only is it affecting the hundreds of millions of people out of work, but it is hurting their families and breaking down the way societies function. When young people with education are unable to find employment, frustrations build. That can impact our world for generations to come,” warned Lars H. Thunell, Executive Vice-President and CEO, International Finance Corporation, US.

According to the survey findings, the uncertain economic outlook is due to the continuing inability of the major industrial countries to recover growth, complemented by a jobless recovery in the US and the lag effect crisis in Europe, while instability in the financial markets was mainly identified as being a lack of a sound and globally accepted regulatory system, resulting in irresponsible fiscal policies across different nations.

A continued economic downturn and an increase in skills shortages in key sectors are leading to high unemployment and dissatisfaction of populations, especially youth.

The global trends identified in the survey also show global power shifts – a major economic gravity shift away from the mature economies towards emerging economies. On the digital revolution side, the information society is becoming more complex, more rapid and more persuasive than ever before, impacting political, social and economic change.

Political entrenchments highlight the growing incapacity of political institutions to manage complex issues, and overpromising and overspending by governments to gain short-term political advantage, all requiring strong international cooperation.

Climate change and scarcity of resources caused by unsustainable consumption continue to loom as grave threats. Inequality in social and economic development has the potential to fuel conflict at national and international levels.

The trends were revealed by a survey of almost 500 global experts comprising the World Economic Forum’s 79 Global Agenda Councils – a network of the world’s most relevant thought leaders from academia, business, government and society.

During the two-day Summit on the Global Agenda 2011, 800 Council Members are engaging in interactive workshops and sessions to set priorities for the most compelling ideas to improve the state of the world and identify the latest trends, new models, risks and innovative solutions to address the world’s challenges.

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