(Updates with details, quotes)
By Clara Ferreira-Marques
LONDON, Jan 9 (Reuters) - A stronger focus on turbulent financial markets and escalating geopolitical tension in 2008 could prompt governments and companies to neglect less immediate risks such as climate change and food security, the World Economic Forum warned.
That, the Geneva-based group said, could make it even harder to deal with these critical, longer-term issues in the future.
“Action to mitigate climate change, for example, may be put in danger should the global economy weaken substantially, even though many of the ... decisions which will shape the future path of global climate will need to be made in the next five years,” the WEF said in a report published on Wednesday.
“(Inaction) on long-term risks will only weaken the global capacity to manage future challenges.”
The Global Risks report, which will form part of the agenda for the Davos meeting of the World Economic Forum of policy makers and business leaders later this month, named four key issues for 2008: systemic financial risk, supply chain disruptions and energy and food security -- a new addition.
Systemic financial risk, it said, was the most immediate and -- from the point of view of economic cost -- the most severe.
“It is not the first time we have experienced a financial crisis, but it is (happening) in a system which has undergone substantial transformation,” said David Nadler, vice chairman of insurance broker Marsh & McLennan (MMC.N), citing deregulation, financial innovation and sovereign wealth funds.
The annual report outlined the risk of a recession in the United States and said Britain’s dependence on the financial sector left it particularly vulnerable.
Nadler, presenting the report, said governments and firms needed to improve stress testing, contingency plans and moves to spot risks before they come to the fore.
The WEF also highlighted risks to the world’s supply chain -- increasingly complicated by the widespread outsourcing of key services -- and energy security, as well as food security, included in the report for the first time.
Factors including demographics, lifestyle changes and climate change, it said, shift the world into a period of “more volatile and sustained high prices” for food.
Hundreds of leaders of the world’s top companies, influential executives and politicians will meet in the Swiss ski resort of Davos later this month, and they are likely be in a far less buoyant mood than a year ago, when the global economy was still enjoying one of its longest periods of growth since World War Two, with confidence running high.
This year they meet after months of a “credit crunch” and capital market unrest, and at the start of an uncertain year.
Among the economic risks for 2008, the WEF report names an abrupt drop in the value of the U.S. dollar, slower Chinese economic growth, tax rises in wealthy nations and a drop in U.S., UK and European house prices.
Geopolitical risks include the collapse of the nuclear non-proliferation treaty or conflict between the United States and either Iran or North Korea, while extreme weather linked to climate change continues to top the list of environmental risks.
The report also warned that challenges were increasingly complex and inter-linked, making it harder to identify who is responsible and how to mitigate major risks. (Editing by Louise Ireland)