Bad News for the Western World

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The global economy is emerging from the financial crisis as a patient might emerge from a sickness, with some signs of recovery but other causes for concern. This week, the patient received comprehensive health evaluations from the World Economic Forum and the World Bank. The prognosis is rather gloomy, particularly for developed countries.

The WEF warns that a world racked by economic disparities and weak global governance--and "in no position to face ... new shocks"--confronts a litany of risks including currency and commodity volatility, growing pension liabilities, and fiscal crises stemming from the tension between increasingly wealthy and influential emerging economies and debt-saddled advanced economies. The report adds that a "rapidly rising global population and growing prosperity are putting unsustainable pressures on resources," with demand for water, food, and energy expected to rise by 30 to 50 percent over the next two decades.

The World Bank, meanwhile, predicts that "high-income" countries like the U.S. will grow by under three percent through 2012 while developing countries will grow at more than double that rate, though they face risks like tense European financial markets and rising food prices. Overall, the report indicates that global economic growth will slow down in 2011.

What should we take away from the reports?

• Most Tragic Problem Is Food and Water, states Douglas McIntyre at 24/7 Wall St, in reference to the WEF report:
  

Crop production cannot keep up with the predicted rise in demand. The supply of fresh water around the world cannot be increased by the levels which are necessary to offer every thirsty person relief. The result to this broad problem is likely to be a rise in famine that is so great that it challenges the imagination. Some countries like the US may offer aid and food, but even America will find the needs of the world’s hungry beyond its means. And, the US economy may be crippled enough so that the generosity it has shown in decades past cannot be renewed.

• Developing World Will Lead Growth In 2011, says Eva Pereira at Forbes: "It once was the case that when the first world caught a cold, the developing world caught the flu. Those days might be over as developing countries have managed to re-orient more of their production toward their domestic market in the wake of the downturn."
  

• Yes, Economic Power Is Shifting East, declares Larry Elliott at The Guardian. The World Bank report reveals that most developing countries have recovered from the financial crisis, he notes. But the more important message is that "this is part of a clear trend that will see economic power move from west to east over the next 20 or 30 years. On current trends, the clock will be turned back to the days before the Industrial Revolution, when China and India--by virtue of their huge populations--were the biggest economies in the world."
  

• While Unemployment Stays High In Developed World, notes Marketplace's Stephen Beard. The World Bank "is saying that while the emerging economies will grow strongly this year, they won't grow strongly enough to lift some of the hardest hit countries like the U.S. and much of Europe out of their malaise."
  

• West Needs Structural Change, argues Daniel Hoffman of Zurich Financial Services, as quoted in The Wall Street Journal: "Current fiscal policies are unsustainable in most industrialized economies. In the absence of far-reaching structural corrections, there will be a high risk of sovereign defaults."
  

This article is from the archive of our partner The Wire.

Uri Friedman is a staff writer at The Atlantic, where he covers global affairs.

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