This is the key conclusion of the many-paged report Global Risks 2008, prepared by World Economic Forum (WEF) experts with colleagues from world financial institutions.
The report, which will be discussed at the WEF annual meeting in Davos on January 23-27, suggests that in 2008 the world will face the highest level of risk for the past 10 years.
The report's authors claim that the main feature of the modern world financial system is that it performs well when the economy is on the rise, and reacts painfully to the development of crises anywhere across the globe. Furthermore, it is becoming increasingly difficult to guess the source from which a financial threat could come.
Before the beginning of 2007, most experts considered the United States' huge import-export imbalance as the greatest threat to the world's financial system. But when the crisis hit, it came not from America's trade deficit, but its mortgage market. The mortgage crisis has made banks unwilling to issue credit for assets of any kind, threatening a fall in consumption and possible recession.
The report warns that a crash in asset prices could trigger off a global financial crisis in 2008. They have given this risk the highest probability rating - more than 20%. WEF experts also estimate the damage to the world economy from a collapse of asset value at more than $1 trillion.
Given such a scenario, recession would first spread across the U.S. and then Europe; GDP growth in China would slow down to 6%, from 11.3% in 2007.
The mainstay of the Russian economy is oil, and Russians should be interested above all in the fate of oil prices.
The report's authors consider that a slowdown in the American economy could have negative implications for Russia - by depressing demand, and hence prices, for raw materials.
A number of Russian experts subscribe to an even gloomier analysis. The so-called "concept of 2009" predicts that a recession in the U.S. would drive oil prices so low that Russia's impressive export surplus would quickly turn into an import surplus. Accustomed to an abundance of cheap imports, Russia would be unable to give them up at a moment's notice and start delving into its hard-currency reserves.
These doomsayers, however, are in the minority. Too many factors point to oil prices (which exceeded $100 per barrel early in January for the first time in history) running at high levels for at least the next 10 years. Demand for oil grows consistently year after year.
Despite huge investment by consumer countries in alternative energy technology, their dependence on traditional hydrocarbons is only growing. Even if the U.S. economy slows down, China's 6% annual growth would continue to push demand for oil. Nor is the much talked about recession in the U.S. anywhere in sight.
On the other hand, oil producing countries and companies take a very conservative view of investments in new fields and have no urge to flood the world with cheap oil. Goldman Sachs, an international bank famed for its prediction two years ago that oil would cost more than $100 per barrel, has now forecasted that average 2008 prices will be $95 per barrel.
Curiously enough, the report's authors even stress that the world economy has learned how to handle high oil prices, and do not highlight them as a threat to global economic stability. If they are right, Russia may be able to enjoy prolonged high hydrocarbon prices without fear they might cause a global downturn and, as a result, a drop in raw materials prices.
The only danger, according to WEF experts, would be a sudden and abrupt surge in hydrocarbon prices caused by disruption of supplies from unstable regions. The experts assess such a risk at 10% to 15% and the likely damage to the world economy at nearly $1 trillion. Strangely, these figures are unchanged compared with 2007, even though at the end of the year Iran said it had shelved its nuclear weapons program. That particular risk, which drove up oil prices throughout 2007, should theoretically be much reduced in 2008.
In summary, the WEF report is not a doomsday scenario, but only an assessment of the probability and degree of risk, or a guide for action to governments. The report's authors strongly advise them to follow the example of advanced companies and set up risk management centers at state level.
The soundness of this advice is hard to deny: governments all over the world demonstrate an ineptitude for risk management.
To give just one example, the Russian authorities have perfectly mastered the technique of stashing money away for a rainy day - as international currency reserves, or the Stabilization Fund.
But economic hiccups - such as the surge in food prices in the fall of 2007 - turned out to be as sudden and unpleasant a surprise for them as it was for the rest of the population.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
