Global Economy Could Only Endure Natural or Man-Made Disaster For a Week

Posted on January 7, 2012

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The global economy could withstand widespread disruption from a natural disaster or attack by militants for only a week as governments and businesses are not sufficiently prepared to deal with unexpected events, a report by a respected think-tank said.

 

Events such as the 2010 volcanic ash cloud, which grounded flights in Europe, Japan’s earthquake and tsunami and Thailand’s floods last year, have showed that key sectors and businesses can be severely affected if disruption to production or transport goes on for more than a week.

“One week seems to be the maximum tolerance of the ‘just-in-time’ global economy,” said the report by Chatham House, the London-based policy institute for international affairs.

The current fragile state of the world’s economy leaves it particularly vulnerable to unforeseen shocks. Up to 30 percent of developed countries’ gross domestic product could be directly threatened by crises, especially in the manufacturing and tourism sectors, according to the think-tank.

It is estimated that the 2003 outbreak of severe acute respiratory syndrome (SARS) in Asia cost businesses $60 billion, or about 2 percent of east Asian GDP, the report said.

After the Japanese tsunami and nuclear crisis in March last year, global industrial production declined by 1.1 percent the following month, according to the World Bank.

The 2010 volcanic ash cloud cost the European Union 5-10 billion euros and pushed some airlines and travel companies to the verge of bankruptcy.

“I would like to think we can learn from those experiences and be more resilient for longer but it won’t happen unless governments and businesses are better prepared and put in place different supply chains which can be relied on when disasters strike,” said Alyson Warhurst, chief executive of UK-based risk analysis company Maplecroft.

CNBC

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