World markets enter new “danger zone”

Financial News

Robert Zoellick, president of the World Bank, has warned that investors have lost confidence in the leadership of certain key countries and that world markets have entered a new “danger zone”.

Mr Zoellick spoke at the Asia Society’s annual dinner in Sydney and said that the global economy was now going through a “multi-speed recovery” and that recent events had caused many to “lose confidence in economic leadership of some of the key countries”.

He continued: “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 … so that policymakers recognise and take it seriously for what it is.”

Mr Zoellick said that a trend of acting on issues “a day late” had led to a situation where worry “has accumulated and so we’re moving from drama to trauma for a lot of the Eurozone countries.”

World markets have been extremely volatile in the past few weeks with most recording significant losses as the US and many European countries struggle to get to grips with mounting debt and produce a credible plan to repay it and bring spending under control.

The US

As it struggled to come up with a plan which satisfied, politicians, investors and economists, the US has for the first time lost its triple AAA credit rating. Last week the markets were pushed further into negative territory on the rumours that France was about to also be downgraded, although these rumours were denied they are a sign of how nervous world markets are at the moment.

On the US, he said markets were not afraid that the world’s biggest economy faced an imminent problem, but that they had got used to the US “playing a key role in the economic system and leadership”.

Closer to home

Here in the UK the FTSE has significant falls over the past few weeks, although last week saw a modest 1.4% rise, it was more significant for the fact that it was the first time in three weeks positive returns had been seen.

Despite the unpopularity of cuts amongst the public, the UK is seen positively on the international stage for attacking the deficit and taking steps to control spending.

Perhaps with one eye on his audience he said that the Australian economy was in a much better position than other developed countries because of the structural reforms it had already undergone.