THE GLOBAL economic recovery is beset by strains that could lead to rising protectionism, political instability and even war, the managing director of the International Monetary Fund (IMF) has warned.
In a wide-ranging assessment of recent global trends, Dominique Strauss-Kahn also said rising food prices could have “potentially devastating consequences” for poor countries and suggested that Asia’s growing economies risked a “hard landing”.
While the IMF recently forecast global growth of 4.5 per cent this year, “it is not the recovery we wanted,” Mr Strauss-Kahn said. Instead, it was “beset by tensions and strains, which could even sow the seeds of the next crisis”. Widening imbalances across countries were creating pressures that threatened to derail the tentative recovery. “As tensions between countries increase, we could see rising protectionism – of trade and of finance. And as tensions within countries increase, we could see rising social and political instability within nations – even war,” Mr Strauss-Kahn told an audience in Singapore yesterday.
He said the pace of recovery between advanced and emerging economies was unbalanced and was reminiscent of the situation just before the global economic crisis struck in late 2008. “While growth remains below potential in the advanced economies, emerging and developing economies are growing much faster and some may soon be overheating,” he said.
Growth in economies with large trade surpluses such as China and Germany was still being powered by exports, while expansion in deficit-stricken countries such as the United States is being driven by domestic demand, he noted. “These global imbalances put the sustainability of the recovery at risk.” Such problems were compounded by a second “dangerous” imbalance, the social strain within countries with high unemployment and widening income gaps.
Mr Strauss-Kahn noted that in the US, for example, income inequality before the crisis was back to levels not seen since the years preceding the Great Depression.
Unemployment was a major economic problem, and was “a strong undercurrent of the political turmoil in Tunisia, and of rising social strains in other counties”. Over the next decade, 400 million young people would join the global labour force.
“We face the prospect of a ‘lost generation’ of young people, destined to suffer their whole lives . . . Creating jobs must be a top priority not only in the advanced economies, but also in many poorer countries,” he said.