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Author`s name Dmitry Sudakov

World to collapse into several major blocs because of financial crisis

The world will fall into several blocs, and countries will separate from each other after the crisis. It is also possible that they will unite in a joint effort to change the global economic system. Experts of the World Economic Forum developed four scenarios for the future long-term development of the world, The Vedomosti newspaper wrote.

The world crisis is not going to end soon. The crisis has already made the world revise the grounds of the financial system, regulating agencies and the role of governments in the economy. The global financial system was growing for 20 years, but the crisis triggered the correction of countless imbalances – the process that will take more than just several years.

In the first scenario, the crisis in the USA and in Europe will exacerbate during the forthcoming years. Developing countries will decline Western ideas and models and close their economies from the rest of the world. Trade and cash flows will come from three major blocs – the American, the European and the Eastern bloc. The flows will differentiate regulation norms, which will increase the capital cost for global companies and result in the prosperous development of local companies. The average annual growth of the world GDP will make up 3.2 percent; in the USA and in Europe – 1.2 percent; in developing states – 9 percent. Asia with China at the head will become the economic and the geopolitical leader. The US dollar and the EU euro will lose the status of world’s two major reserve currencies.

In accordance with the second scenario, the recession will first and foremost hit developing states. The West will keep its leading position in the world and determine financial regulation, market functioning and other principles. International financial institutes will be reformed. However, the reforms will not take account of the needs of developing countries and the need to revise the principles of risk-management, which may intensify the danger of a deeper crisis even more. The GDP of developed countries will gain 3.1 percent every year, 6 percent of developing states and 3.6 percent of the world on the whole.

The third and the most pessimistic scenario will send the world into the whirlpool of international conflicts and struggle for resources. Many countries will impose restrictions on the movement of capital and goods. Many countries will nationalize their banking systems, the euro-zone will collapse in 2014 because of sovereign defaults and discrepancies between members. The world GDP will grow at only 2.3 percent.

According to the fourth and the final scenario, world politicians will realize that a coordinated common approach to the problem is the only way to extricate from the crisis. They will recognize that developing countries take the lead on the international arena, which will help them form common risk-management principles to make it connect the macroeconomic policy.

The world economy will be growing at a slow pace, but will then accelerate to 3.6 percent a year at the expense of developing countries, first and foremost. The world financial system will remain integrated with companies oriented at developing states (Brazil, Russia, India and China) playing the key role in the system.

Source: agencies

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