The swine flu outbreak in the middle of the global economic downturn isn't exactly a bolt from the blue. Such a nightmare scenario was envisaged two years ago by the World Economic Forum, no less.
The World Economic Forum's 2007 Global Risk Report didn't categorically say such a disaster was bound to happen, but it looked at the possibility and concluded it would hurt globalization.
A Reuters report published by the Independent yesterday said:
In its 2007 report on global risks, the World Economic Forum imagined the consequences of a simultaneous pandemic and global liquidity crisis – a scenario that was purely speculative then but which now seems eerily prescient.
The result, it said, would be "a backlash against globalisation, which in turn compounds the hit on global demand".
I have since looked at the World Economic Forum's 2007 Global Risk Report and am struck by how it anticipated the current crisis. It mentioned the following possibilities (and I quote):
Chinese economic hard-landing: Chinese growth is both investment- and export-led. The expansion of exports may generate a backlash (particularly in the US); high
investment (over 40% of GDP) has generated excess capacity and fears of potential bad debts.Fiscal crises caused by demographic shift: The deterioration of fiscal balances in G8 countries, combined with continuing large deficits in other large countries, renders a series of major fiscal crises possible, exacerbated by the long-term challenges of ageing and equitable healthcare provision.
Blow-up in asset prices/ excessive indebtedness: House prices have doubled in most mature markets (and in some emerging markets) in real terms over the last 10 years, putting price-to-income ratios at all-time highs. Many experts fear a major correction, with differential impacts on consumption, economic growth and other asset prices.
This was the official report of the World Economic Forum, the rich men's club which meets in Davos every year. In June 2007, there was also a World Economic Forum on East Asia held in Singapore where Senior Minister Goh Chok Tong spoke of the need for good government.
There had even been prior warnings of the coming downturn.
The then IMF chief Rodrigo de Rato cautioned at the IMF/World Bank conference in Singapore in September 2006: "The global growth cycle may be close to its peak."
So why did economic forecasts continue to be optimistic last year?
Even when Singapore officially went into recession in November last year, the Ministry of Trade and Industry was still forecasting the economy would grow by up to 2 percent or shrink by up to 1 percent this year. Now it expects the economy to shrink by 6 to 9 percent.
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