Fiscal, Income Gaps Most Likely Risk to Prosperity, WEF Says

Greater income disparity and fiscal imbalances are the most likely threats to global prosperity in the next decade, the World Economic Forum said.

Budget gaps and social inequality will hurt economic growth by fanning protectionism and nationalism if they are not addressed by policy makers and business leaders, the forum said in a report released at Bloomberg’s London headquarters. The bulletin also cited outlier “X-factors” which pose potential threats to the world economy, such as a volcanic winter and cyber attacks on businesses and governments.

“We’ve got these big structural deficits facing us and pension funding so we’ve got a very sticky long-term issue if we don’t address this,” said Steve Wilson, chief risk officer for general insurance at Zurich Financial Services AG. (ZURN) “There’s the risk of more riots, more dissatisfaction, more property damage and that has a spiraling effect of dragging economies down.”

Europe’s sovereign debt crisis will be a drag on global economic growth, causing the region to slip into recession this year, according to forecasters including Morgan Stanley. The economic turmoil may create the same conditions for inequality that spurred the Arab Spring revolutions in Tunisia, Egypt and Libya, the forum said.

The World Economic Forum holds its annual meeting in the Swiss ski resort of Davos in two weeks’ time.

Water Wars

A major systemic financial failure and water supply crisis were found to be the biggest risks in terms of impact, the report said. A year ago, meteorological and hydrological catastrophes were cited as the most likely dangers, with a fiscal crisis and climate turmoil viewed as threatening the biggest fallout.

The eruption of the Eyjafjallajoekull volcano in Iceland in 2010 reminded risk managers of how nature can cause chaos to the world’s transport systems, the report said. The interconnectedness of businesses, governments and individuals through technology is also become a more concentrated risk, it said.

“There’s a whole new range of cyber risk,” Wilson said. “Everything runs through technology such as power grids. This is a huge exposure.”

The report was based on a survey of 469 experts, including executives at insurance companies and policy institutions.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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