World Economy

WEF Report Outlines Risks of New Crisis in Global Economy

Switzerland retains the top spot as the most competitive economy for a ninth straight year, closely followed by the US and Singapore
WEF says global economies remain at risk from further shock and are ill-prepared for the next wave of automation and robotization
WEF says global economies remain at risk from further shock and are ill-prepared for the next wave of automation and robotization

The 10th anniversary of the worst downturn since the Great Depression finds the global economy at risk of a fresh crisis and ill-prepared for the disruption likely from the robot age, the World Economic Forum has warned.

The Switzerland-based organization's 2017 Global Competitiveness Index, published Wednesday, assesses various factors driving countries' productivity and prosperity–including its institutions, infrastructure, education, innovation and labor market efficiency, among others, and showed a sharp divide between major global economies, CNBC reported.

"Ten years on from the global financial crisis, the prospects for a sustained economic recovery remain at risk due to a widespread failure on the part of leaders and policy-makers to put in place reforms necessary to underpin competitiveness and bring about much-needed increases in productivity," WEF stated of its findings.

In 2017, the report found that Switzerland retained top spot as the most competitive economy for a ninth straight year, closely followed by the US and Singapore. Also in the top 10 were the Netherlands in fourth place, followed by Germany, Hong Kong, Sweden, the UK (which had fallen from sixth to eighth place), Japan and Finland.

With the usual suspects populating the rankings again this year, Margareta Drzeniek-Hanouz, head of Economic Progress at the World Economic Forum, told CNBC on Wednesday that there had not been much effort at structural reforms that would improve competitiveness.

"Global growth has been mainly fueled by monetary policy and low interest rates over the last few years so we do not see much progress on productivity, so that is reflected in the ranking. At the same time, we should be seeing more (productivity) in order to keep growth going forward," she told CNBC Wednesday.

Major BRICS economies lagged far behind, however, with China standing at number 27 in the forum's ninth year of competitiveness rankings, Russia at 38, India at 40, South Africa at 61 and Brazil at 80.

There was also much divergence between the high-ranking northern European economies and southern European ones, including Spain (34), Italy (43) and Greece (87).

The organization said that that its 2017 report highlighted three key areas of concern, including the robustness of the financial system, a lack of flexibility in labor markets and an imbalance between investments in technology and efforts to promote their adoption in the wider economy.

Age of Talentism

Heralding what the organization has called the Fourth Industrial Revolution–which is characterized by a range of new technologies that are fusing the physical, digital and biological worlds, WEF urged governments to adopt more flexible labor markets as an era of automation and robotization approached.

"Another key finding is that competitiveness is enhanced, not weakened, by combining degrees of flexibility within the labor force with adequate protection of workers' rights. With vast numbers of jobs set to be disrupted as a result of automation and robotization, creating conditions that can withstand economic shock and support workers through transition periods will be vital," it said.

Commenting on the latest WEF report, Klaus Schwab, the organization's founder and executive chairman, said that "global competitiveness will be more and more defined by the innovative capacity of a country."

"Talents will become increasingly more important than capital and therefore the world is moving from the age of capitalism into the age of talentism. Countries preparing for the Fourth Industrial Revolution and simultaneously strengthening their political, economic and social systems will be the winners in the competitive race of the future," Schwab said.

Debt Boom

Banks across the world are more vulnerable to a crisis now than they were in the build up to the credit crunch, the WEF warned.

Bad loans in India have more than doubled in the past two years, while in China’s financial system “business credit is building up similarly to the United States pre-crisis, and could be a new source of vulnerability.”

China’s credit boom has been the subject of several warnings from global finance groups and regulators in recent months. Last week the Bank of International Settlements warned that higher interest rates in the US could have a knock on effect in the world’s second-largest economy, forcing rates higher in China, making the debt mountain more expensive to maintain and hitting the economy hard.

Britain, the US and other developed economies have taken major steps to shore up their banking systems as they were at the heart of the financial crisis, but the global financial system as a whole faces new and growing risks.


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