Europe's debt crisis threatens to undermine consumer confidence and cut off credit to businesses in the rapidly emerging markets that have been bright spots in an otherwise grim global economy, the head of the World Bank warned on Tuesday.
"While the European and eurozone problems have to be dealt with primarily by Europe, you've got to be aware of the ripple effects of this and the ripple effects can easily become wave effects," Robert Zoellick, the institution's president, said in a talk with students at Harvard University. Leaders of the eurozone nations have been scrambling to head off a spreading sovereign-debt crisis that has hit the Greek, Italian, Portuguese and Irish economies and threatens to engulf the rest of the 17-nation bloc.
One key risk Zoellick cited is that worries about Europe's troubles will spook consumers in emerging markets, such as China, India and Brazil, that have been far quicker to recover from the private-sector credit crunch of 2008. "What I was most worried about and remain worried about is the fact that if the problems in consumer confidence ... and business confidence in Europe and the US spread to emerging markets then the domestic demand of those economies would also wither," Zoellick said.
"Keep in mind that over the past five years, two-thirds of the world's global growth has come from emerging markets. So it's not only bad for emerging markets, but it's bad for the world." Major US multinational companies including General Electric Co and Caterpillar Inc have notched solid profit growth this year in part because strong emerging-market demand offset weakness at home and in Europe.
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