The world has not yet escaped the risk of a collapse in the global economy despite some renewed confidence heading into 2013, the founder of the World Economic Forum told The Associated Press on Monday.
Swiss economist Klaus Schwab, speaking on the eve of the elite annual gathering in the Swiss mountain resort of Davos, called for the business and government leaders heading there to focus on “cautious realism” and a recovering public trust to avoid another major financial crisis.
“The problems and the risks have not gone away,” he said in an interview. “The world economy may still confront a collapse if very negative constellations occur.”
Markets started strongly this year, with many stock indexes near multiyear highs, and the euro currency union no longer seems in danger of breaking apart. Throughout 2012, the world’s central banks flooded financial systems with new money.
But unemployment remains high in many developed economies, and the public’s faith in business and government leaders is falling. The euro alliance and Japan are in recessions. And politicians in the United States are struggling to finalize a budget deal to avoid a potential default that would cause havoc in financial markets. Even if the U.S. does reach a deal, as expected, it could include big government- spending cuts that would hurt the global economy.
Schwab said economic growth is based on optimism, among both consumers and investors, so the challenge is for leaders “to give people the confidence again to look with more optimism into the future.”
However, he said a fundamental problem is that the latest economic recovery is a “jobless growth,” — where any early improvement in the economy is yet to be felt in the broader job market.