Business

Saturday July 2, 2011

OECD warns of future unrest in the global economy

By Cecilia Kok
cecilia_kok@thestar.com.my


Pandemics, cyber attacks, financial crises, civil unrest and geomagnetic storms - these are the five “global shocks” that could destabilise the global economy, according to a new report by the Organisation for Economic Co-operation and Development (OECD).

In its latest revelation, the Paris-based international economic organisation of 34 advanced nations warns that those disruptive shocks are likely to occur with increasing frequency and cause greater “economic and societal hardship” to the international community.

Hardly any economy can stay insulated from the spill-over effects of these phenomena.

The report, entitled “Future Global Shocks”, says the potential for wide-ranging and destructive consequences transcend national boundaries, given the increased interconnectivity and the speed with which people, goods and data travel between various countries.

In addition to macroeconomic shocks that traverse globally integrated markets, sudden food shortages, natural disasters and outbreaks of infectious disease may occur in faraway places disrupting various industrial and social systems around the world, itsays.

This global community has seen the manifestations of destabilising elements emerging over the past two years, threatening to jeopardise the political, economic and social stability in several countries.

Recent examples include the ongoing political uprising in the Middle Eastern and North African (Mena) region, and the Euro zone debt crisis, as well as the devastating earthquake and tsunami that destroyed part of Japan in March. There was also the outbreak of H1N1 influenza A virus two years ago that spread to more than 210 countries, with reported deaths exceeding 18,000, before the pandemic receded in the latter part of 2010.

The OECD's predictions serve as crucial reminders to governments and policymakers of the potential risks and vulnerabilities surrounding the global economy. Governments and policymakers should explore new approaches to international cooperation and greater information sharing to better assess potential shocks and establish prevention frameworks to minimise the negative effects of future storms. it says.

According to the OECD, there's also a pressing need for policymakers to increase resources allocated to develop effective surveillance and monitoring systems to better manage the oncoming risks.

Director of the OECD International Futures Programme Michael Oborne says in his foreword to the organisation's report:“There is a palpable sense of urgency to identify and assess risks arising from vulnerabilities in crucial systems, and to develop policies that will bolster efforts for prevention, early warning and response to ensure sustained economic prosperity.

“Visible indicators of vulnerability persist in the forms of economic imbalances, volatile commodity prices and currencies, colossal public debts and severe budget deficits, while the less visible ones are the drivers of vulnerability that tightly weave interconnections between commercial supply chains, technological systems and investment vehicles underlying the global economy.”

Natural disasters, failures in key technical systems or malicious attacks are factors that could disrupt those complex systems and produce shocks that could spread across the world, he adds.

Much of the world's concern is still focused on the potential risks arising from the social unrest in Mena that could affect oil prices and exacerbate global inflation; the debt dilemma in Greece, whereby the attempted remedial measures have sparked public riots in the country, but non-action otherwise would likely lead to a debt default that could potentially cause a contagious financial crisis in the Euro region; rising inflation, especially in food prices that have increased incidences of poverty and seen as the root cause of social unrest in several countries; and the deceleration of US economic growth that would have implications for global growth and exports-driven economies in Asia.

Economists acknowledge there is still no light at the end of the tunnel yet despite the intense coordinated efforts by governments to deal with the problems.

In Malaysia, moderating growth in the near term and rising inflation have become inevitable facts. Being a highly open economy, Malaysia could still be affected by the spillover effects of global developments. And that should be reason enough for the Government to put its focus right, especially in terms of economic and risk management to ensure that the country's economy and the welfare of its people are protected.

While most economists are optimistic that the Government's Economic Transformation Programme (ETP) could continue providing momentum to the country's economy and its subsidy programmes to minimise the effects of rising inflation, some are still concerned that the persistent political infighting could distract the Government from what's more important and undermine its efforts to improve the country's economy.

One economist says: “Global risks are rising, the country cannot afford to be apathetic and remain inward-looking. It's high time that politicians from both divide come to their senses and work together to help the country remain on a sustainable path.”

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