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Global economy ‘could bear disaster for a week’

London, January 6, 2012

The global economy could withstand widespread disruption from a major natural disaster or attack by militants for only a week, a report by UK-based think-tank Chatham House said on Friday.

The frequency of natural disasters, such as extreme weather events, appears to be increasing and globalisation has increased their impact, the report found.

Events such as the 2010 volcanic ash cloud, which grounded flights in Europe, Japan's earthquake and tsunami and Thailand's floods last year, 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," Chatham House said.

The world's economy is currently fragile, leaving it particularly vulnerable to unforeseen shocks. Up to 30 per cent of developed countries' gross domestic product could be directly threatened by crises, especially in the manufacturing and tourism sectors, it said.

It is estimated that the 2003 outbreak of severe acute respiratory syndrome (SARS) in Asia cost businesses $60 billion, or about two 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 per cent the following month, according to the World Bank.

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

In the event of continued disruption, some businesses would cut investment and jobs or consider closing down, leading to a permanent reduction in countries' growth, the report said.

In general, governments and businesses are under-prepared to respond to high-impact, unpredictable events, the report said, and it can be difficult to coordinate across borders. 

The think-tank recommended various ways to improve responses from governments and businesses to extreme events, covering areas such as communication, transparency, insurance, investment, training, cost and impact analysis. – Reuters




Tags: militants | attack | Global economy | Chatham House | Disaster |

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