World Economy in ‘Danger Zone’, Says World Bank

What’s the Latest Development?

On Sunday, president of the World Bank Robert Zoellick said the world economy is in “a new danger zone” because of the European sovereign-debt crisis, the U.S. credit downgrade and the lack of tools Western policy makers have to confront the threat of another recession. Recent bond purchases made by European governments will help in the short term but Zoellick endorses “structural overhauls to boost productivity, job creation and free trade in a push to get growth back on track.” He said the developing world, particularly China, faces inflation risks. 

What’s the Big Idea?

While employment has lagged in both the U.S. and Europe for years, it was during the recent stock market fluctuations that economists speculated on the likelihood of another global recession. The causes of the recent stock declines and national unemployment rates seem structural rather than seasonal. American manufacturing has long been gutted by cheap labor overseas and the sovereign budget deficits eating away at Europe’s welfare states risk crossing borders, threatening the existence of the trade block that is the European Union.