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27 Jun, 2011

OECD: Global Economic Shocks to Become More Frequent

PARIS, 27 June 2011, (OECD News Release) — Disruptive shocks to the global economy are likely to become more frequent and cause greater economic and societal hardship, according to a new OECD report. The economic spill-over effect of events like the financial crisis or a potential pandemic will grow due to the increasing interconnectivity of the global economy and speed with which people, goods and data travel, the report says.

“Future Global Shocks” analyses five potential major risks in the years ahead: a pandemic, a cyber attack disrupting critical infrastructure, a financial crisis, socio-economic unrest and a geomagnetic storm.

The growing threat of a pandemic was highlighted by the SARS outbreak in 2002, which spread quickly from Hong Kong around the world as travellers caught the virus and then flew home. The increasing number of heavily populated megacities, notably in Asia, exacerbates the risk, particularly in business travel, tourism and migration hubs like Dhaka, Manila and New Delhi.

New antibiotics are desperately needed to keep pace with the rising development of bacteria that are drug-resistant, according to the report. Tax incentives and fast-tracking patents may encourage firms to invest, given the very high costs of antibiotic drug development.

The report also details how wildfires that destroyed a fifth of Russia’s wheat crop in 2010 led to price spikes in global food markets, which eventually triggered social unrest in the Middle East. It shows how Russia’s internal policy response to fears of domestic food shortages – a controversial export ban –  combined with floods in Australia and Canada to generate price hikes worldwide. Experts today recognize that high food prices provided a tipping point for the protest movements that have raged across the Middle East and North Africa.

While large-scale disasters provide a point of reference for government planning, global shocks would have far more dramatic consequences. They will require new approaches that improve international co-operation and co-ordination, the OECD says. Policy makers should:

  • Step-up efforts to acquire and share data and a variety of simulation models to better anticipate and assess potential shocks;
  • Increase resources allocated to surveillance and monitoring of threats and early warning systems;
  • Take an internationally co-ordinated approach that reduces or stops threats before they proliferate worldwide;
  • Improve international co-operation and incentives to promote diversity in critical systems;
  • Enhance multi-stakeholder partnerships, information sharing, consultations, capacity building stress tests, and drills.

The OECD Futures Project on Emerging Systemic Risks was a two year project (2000-2002) conducted within the framework of the OECD International Futures Programme (IFP), under the supervision of a Steering Group composed of the representatives of 19 governmental departments, 7 corporations and 3 international organisations. It led to the publication of “Emerging Risks in the 21st Century: An Agenda for Action“, a cross-sectoral analysis of risk management issues in the 21st Century.