Levels of political and economic uncertainty at their highest levels in 10 years says report

The UK is the most vulnerable country in Europe to fall-out from the credit crunch, a leading risk survey has warned.

In its annual report into the state of global risks, the World Economic Forum (WEF) said that levels of political and economic uncertainty were at their highest levels in 10 years, and that the ongoing liquidity crunch could result in a recession in the US during the next 12 months.

The report outlined four key areas where risk had the potential to impact most heavily on the global economy: systemic financial risks (linked to sub-prime), supply chain vulnerability, availability of energy and food security.

David Nadler, vice chairman of Marsh & McLennan Companies (MMC), who co-authored the report, said: “Systemic financial risk is the most immediate and, from the point of view of economic cost, most severe risk facing the global economy.”

Nadler said that financial innovation in the past 10 years had made the system more resilient in times of stability but, due to the increasing diversification of risk ownership, “fundamental changes in the architecture of the system [had] also made it more vulnerable to certain kinds of shocks”.

This innovation, the report concluded, could make it more difficult for regulators to respond to financial instability. It called for governments to create ministers, known as country risk officers, to manage risk at the national level.

The report was compiled by the WEF in collaboration with a number of multi-national companies, including MMC, Swiss Re, Zurich, and Citigroup.

It will form the core of the agenda at the annual meeting of the WEF later this month at Davos in Switzerland.