Joblessness, rising prices could spark war within nations - IMF chief

Wednesday, 2 February 2011 00:14 -     - {{hitsCtrl.values.hits}}

SINGAPORE (Reuters) - The world economy is beset by problems such as high unemployment and rising prices which could fuel trade protectionism and even lead to war within nations, the head of the International Monetary Fund warned on Tuesday.

Rising food and fuel prices in recent months have already hit poorer countries and are one of the factors behind massive anti-government protests in Egypt and in Tunisia, whose president was ousted last month.

“As tensions between countries increase, we could see rising protectionism -- of trade and of finance. And as tensions within countries increase, we could see rising social and political instability within nations - even war,” Dominique Strauss-Kahn said in a speech in Singapore.

Strauss-Kahn noted two “dangerous” imbalances that he said could sow the seeds of the next crisis.

The first was the unbalanced recovery across countries, as emerging nations grow much faster than developed economies and possibly overheat. The second was the social strains within countries with high unemployment and widening income gaps. Over the next decade, 400 million young people would join the global labour force, posing a daunting challenge for governments, Strauss-Kahn added.

“We face the prospect of a ‘lost generation’ of young people, destined to suffer their whole lives from worse unemployment and social conditions. Creating jobs must be a top priority not only in the advanced economies, but also in many poorer countries.”

Unemployment stands at 9.4 percent in the United States while European countries are struggling to create jobs. Despite high joblessness in the wake of the 2008 global credit crisis, trade barriers have not reached levels feared by many analysts. Instead, a number of countries, most prominently China according to its critics, have sought to keep their currencies undervalued to keep exports humming.

“The pre-crisis pattern of global imbalances is re-emerging,” Strauss-Kahn said.

“Growth in economies with large external deficits, like the U.S., is still being driven by domestic demand. And growth in economies with large external surpluses, like China and Germany, is still being powered by exports.”

Strauss-Kahn said the IMF expected subdued growth of 2.5 percent for advanced economies this year as high unemployment and household debt weighed on domestic demand.

Emerging markets would grow at a faster pace of 6.5 percent, with Asia excluding Japan expanding by 8.5 percent, he said.

Oil stays above $ 100, IEA moves to calm markets

Reuters: Oil hovered above $100 on Tuesday as the market assessed the risk of Egypt’s social unrest spreading to neighbouring OPEC members, but stayed below yesterday’s high of $ 101 on lower factory growth in China.

Analysts and traders agreed that the popular uprising against the Egyptian government was unlikely to disrupt tanker movement and oil flows along the strategic Suez Canal and Sumed pipeline, but said that the restive mood in the region will support prices.

“Even if the worst case scenario of a complete halt of traffic through the crucial link materialises, the global surplus in shipping capacity would allow a switch to the longer haul journey around southern Africa without too much of a headache,” JBC Energy said in a research note.

“However, there appears to be a substantial risk that events could spread to other countries in the region,” the report said.

The unrest in Egypt comes on the heels of an uprising in Tunisia that toppled the country’s president and is keeping global investors and traders on the lookout for any signs of copycat unrest in neighbouring OPEC producer Algeria.

Brent crude for March slid 48 cents to $ 100.54 a barrel as of 1006 GMT, after topping $ 100 for the first time since October 2008 on Monday, when prices touched an intraday high of $ 101.73. US crude shed 10 cents to $ 92.09.