World Bank chief warns of ‘new danger zone’ for global economy

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Rising debt and slowing growth have the global economy entering ‘a new danger zone,’ and world leaders need to act to restore public confidence, the head of the World Bank warned.

Speaking to reporters in Sydney, Australia, on Sunday, World Bank President Robert Zoellick said he was concerned that the turmoil in financial markets triggered by the European debt crisis could lead to ‘increased temptations’ for nations to be more protectionist in their trade policies.

Such a move could exacerbate the worldwide economic slowdown at a time when most countries are unable to do much more to stimulate growth.

‘I think we’re entering a new danger zone, and I think that confidence in economic leadership has been slipping,’ Zoellick said after the annual dinner of the Asia Society. ‘And it will be important that the primary economic actors take steps, both short and long term, to restore that.’

Zoellick did not address the U.S. fight over raising the debt ceiling or the credit downgrade by Standard & Poor’s. But he said European countries needed to do more to reduce their debt levels -- and that failure to take tougher steps had led to the loss of confidence.

‘Unless the economic leadership gets ahead of the problem in its different dimensions, then you’ll see that the lack of confidence will lead it to spread, and it will spread to players that should otherwise be able to sustain their policies and get beyond the crisis,’ he said.

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-- Jim Puzzanghera