Financial markets globally have entered a “new danger zone”, warned World Bank chief Robert Zoellick, adding that investors are increasingly losing confidence in the economic leadership of several key economies.
The global economy will witness “multi-speed” recovery, said Mr. Zoellick while speaking at Asia Society’s annual dinner in Sydney. Emerging economies are the new economic drivers of growth, he added.
Since ratings agency Standard and Poor’s cut America’s AAA rating for the first time in history over a protracted bitter political deadlock that pushed the country on the verge of default, global markets have witnessed massive turbulence in the last two weeks.
In Europe, Italy announced its second round of austerity measures, while rumours of France facing a ratings downgrade similar to the US also emerged in the last few days.
“What’s happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries,” explained Mr. Zoellick adding, “I think those events combined with some of the other fragilities in the nature of recovery have pushed us into a new danger zone. I don’t say those words lightly.”
The global markets have got used to the US “playing a key role in the economic system and leadership,” said Mr. Zoellick adding that the world financial markets did not fear of the biggest economic powerhouse faced any imminent threat.
However, the Eurozone faced more imminent threats with a lot of member states “moving from drama to trauma,” he added.
Because of the structural reforms undertaken by Australia, its economy is on a much firmer ground, he said. China can tame inflation if it allows the Yuan to appreciate, he said while talking about Asia’s fastest growing economy.