IBRD Chief Warns World Economy in Danger

Sept. 12, 2011 - PRLog -- World Bank chief Robert Zoellick warned Saturday that the global economy is heading into a new "danger zone", as growth slows and investor confidence weakens, and noted that near record-high food prices and volatile commodity markets are threatening the most world's vulnerable people. Events in the past few weeks in Europe and the United States already have had an adverse impact, and could signal even bigger problems ahead. Several European nations continue to struggle with high debt, slow economies and other issues, while U.S. politicians went to the wire before they raised its debt ceiling -- only to see credit agencies downgrade its credit rating, and stock markets flounder. This reflects growing sentiment that years after the start of a major recession conditions could continue to deteriorate.

The Horn of Africa is the most affected by high food price levels. The emergency in the Horn of Africa was triggered by prolonged droughts, while food prices that are near record high levels seen in 2008, also contributed to the situation. World Bank Group's Food Price Watch warns that global food stocks remain low, and potential volatility in the prices of sugar, rice, and petroleum products could have unexpected effects on food prices in the months ahead. Zoellick said that the World Bank is stepping up to address this crisis with a sense of urgency.

The international economy may be on the brink of danger because of huge debts, slow growth and low investors’ confidence. The World Bank chief urged Europe and the United States to tackle their debt problems and China to accelerate its structural reforms as it seeks to develop from an export-driven economy towards a growth model more reliant on domestic consumption. The international financial crunch in Europe has become a matter of sovereign debt crisis which entails hazardous ramifications for the monetary federation. The United States of America shall have to control its debts and expenditures and reform its tax system in order to boost the private sector’s growth. The World Bank in July reclassified China as an upper middle income economy, putting it in a group of nations that he said needed to move on from the growth models they relied on while they were poor.

China is "well positioned" to become a "high-income" nation in the next 15 to 20 years, from its status as an "upper-middle income" country now, the question is whether China can avoid the "middle income trap", where national productivity and income growth stalls after per capita income hits $3,000 to $6,000. Although China is the world's second-largest economy, its per capita gross national income stands at just $4,260, World Bank data showed, less than a tenth of the $47,140 seen in the United States. Critics have long said China relies too much on heavy investment and exports to drive its economy, and should encourage domestic consumption. For Chinese consumption to take off, analysts say China needs to cut income taxes, improve healthcare services and labor mobility, and reduce Beijing's share of national income by raising dividend payouts from state firms, among other measures.

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