GO
Loading...

Income disparity, fiscal crises threaten 2014: WEF

Thursday, 16 Jan 2014 | 2:14 AM ET

The growing disparity in income poses the biggest risk to a stable society in the next decade, according to a study by the World Economic Forum (WEF).

The chronic gap between the incomes of the richest and poorest citizens is seen as most likely to cause serious damage globally, over 700 global experts surveyed for the World Economic Forum's "Global Risks 2014" report published on Thursday said.

After income disparity, experts believe extreme weather events are most likely to cause systemic shock on a global scale. Unemployment and underemployment, climate change and cyberattacks, were also highlighted as significant risks.

Taking a 10-year outlook, the report assesses 31 risks that are global in nature and have the potential to cause significant negative impact across entire countries and industries.

The risks are grouped under five classifications – economic, environmental, geopolitical, societal and technological – and are measured in terms of both their likelihood and potential impact.

While income disparity was seen as most likely to cause trouble, the report highlighted fiscal crises as potentially having the greatest impact.

(Read more: O'Neill: Global income redistribution could happen)

A U.S. budget row last year saw economists warn of dire global economic consequences unless an agreement to raise the borrowing limit was reached. In October, disputes over funding of "Obamacare" health insurance reforms prompted a 16-day shutdown for many agencies, leaving thousands of federal workers without a job.

While in the euro zone, the WEF report noted that despite efforts of many countries to control their deficit and debt levels, concerns regarding fiscal crises persist.

"They are also fueled by the high levels of public debt in Japan and the U.S., where political gridlock has exacerbated perceptions," the report added.

"Advanced economies remain in danger of fiscal crises. Given the U.S.'s official public debt of more than 100 percent of its GDP, and Japan's of more than 230 percent, investors may at some point conclude that these levels are unsustainable," the report stated.

"In the short run, the risks are higher for euro zone countries, which lack the option of devaluing their currencies to ease the necessary fiscal adjustment," it warned.

In addition to economic risks, climate change and water crises could also have a significant impact, as could unemployment and underemployment and the technological risk of a breakdown in information infrastructure, WEF said.

"Each risk considered in this report holds the potential for failure on a global scale; however, it is their interconnected nature that makes their negative implications so pronounced as together they can have an augmented effect," Jennifer Blanke, chief economist at the World Economic Forum, said.

"It is vitally important that stakeholders work together to address and adapt to the presence of global risks in our world today."

(Read more: Is income inequality biggest global risk?)

The fact that income inequality has headlined the WEF's global risk report for two years in a row now shows that global policymakers have yet to address the issue, John Drzik, president of Global Risk and Specialties at Marsh, a WEF partner company which assisted the development of the report's development, told CNBC.

Jeffrey Coolidge | Digital Vision | Getty Images

"Global governance is center of the web [but] what we're seeing this year in particular is weakening global governance…We need to shore up critical institutions," he told CNBC on Wednesday.

"Social instability is still a very significant risk. The fiscal position of some governments has improved but we're still not at a point of resilience and as such it could create rising social instability in some countries."

(Read more: Social safety nets don't help people get out of poverty: Rubio)

In addition to measuring the seriousness, likelihood and potential impact of the numerous global risks, this year's WEF report included a special investigation into global youth unemployment and underemployment, an acute problem facing many countries in both the developed world and emerging economies.

Drzik told CNBC that record youth unemployment -- which stands at more than 50 percent in Greece and Spain, for example –could act as an "amplifier [of social instability] in certain countries because without jobs there is less and less stability and this is a growing part of the population."

He said that in order to tackle the problem, European institutions needed to coordinate discussions and programs to improve both the economy and jobs training programs.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.

Featured

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Don't Miss

U.S. Video