The World Economic Forum urges increased readiness for disaster

By Edmund Conway, Economics Editor
Last Updated: 3:03am GMT 11/01/2007

Countries and businesses around the world have become dangerously complacent about the risks facing them, a key authority has warned, saying that the vast majority of economic threats have worsened in the past year.

The World Economic Forum said that, among other risks, there was now a chance of between 10pc and 20pc that the house price and debt bubble which has built up around the world - including the UK - bursts, causing more than $1,000bn damage.

advertisementIn its annual Global Risks Report, the forum gave warning that the world's recent golden stretch of growth might have given people a false sense of security. It urged governments to follow business's lead and appoint a national risk officer to make contingency plans in case of economic, environmental or terrorist disaster.

Of the 23 global risk issues examined by the report, 15 had intensified in the past year alone, and none had eased off, the report concluded. They include climate change, the possibility of a flu pandemic, a sudden spike in oil prices and a retrenchment of globalisation.

Some of these risks could cost the world more than $1,000bn (£520bn) each but the report said they were much more likely to coincide, since one sort of disaster could easily cause another. Michael Cherkasky, chief executive of Marsh & McLennan, said: "The world has certainly become a riskier place to live, thanks partly to globalisation.

"But there is a complacency in business and government, not about talking about the risks, but taking steps in limiting them.

"The way companies look at risk because of the profit and loss effect is infinitely more sophisticated than governments. We need to be more proactive."

The report said there was a 5pc to 10pc chance of a further sharp fall in the dollar, which would cost the world economy between $50bn and $250bn.

The other major economic risks were a hard landing in China and a budget crunch caused by ageing populations. It said environmental risks had worsened, although growing awareness indicated that there was potential for action.

The report suggested that the US and Europe raise fuel taxes to cut carbon emissions.

Jacques Aigrain, chief executive of Swiss Re said: "It has now become clear that, when it comes to issues like climate change, the costs of inaction far surpass the effective investment that would be possible today."

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Full list of economic risks

Risks which have increased in the past year:

• Oil price shock/energy supply interruptions
• US current account deficit/fall in US$
• Chinese economic hard landing
• Fiscal crises caused by demographic shift
• Blow up in asset prices/excessive indebtedness
• Climate change
• Loss of freshwater services
• Natural catastrophe: Tropical storms
• Natural catastrophe: Inland flooding
• International terrorism
• Proliferation of WMD
• Interstate and civil wars
• Failed and failing states
• Retrenchment from globalization
• Middle East instability

Risks which have remained stable:

• Natural catastrophe: Earthquakes
• Transnational crime and corruption
• Breakdown of critical information infrastructure (CII)
• Emergence of risks associated with nanotechnology
• Pandemics
• Infectious diseases in the developing world

Experts disagree over whether risks have intensified:

• Chronic disease in the developed world
• Liability regimes

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