Global economy unprepared for disaster

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LONDON — The global economy could withstand widespread disruption from a natural disaster or attack by militants for only a week as governments and businesses are not sufficiently prepared to deal with unexpected events, a report by a respected think-tank said.

Events such as the 2010 volcanic ash cloud, which grounded flights in Europe, Japan’s earthquake and tsunami and Thailand’s floods last year, have shown 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,” said the report by Chatham House, the London-based policy institute for international affairs.

The current fragile state of the world’s economy leaves it particularly vulnerable to unforeseen shocks. Up to 30% of developed countries’ gross domestic product (GDP) could be directly threatened by crises, especially in the manufacturing and tourism sectors, according to the think-tank.

It is estimated the 2003 outbreak of severe acute respiratory syndrome in Asia cost businesses $60 billion, or about 2% 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% the following month, according to the World Bank.

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

“I would like to think we can learn from those experiences and be more resilient for longer, but it won’t happen unless governments and businesses are better prepared and put in place different supply chains which can be relied on when disasters strike,” said Alyson Warhurst, chief executive of (United Kingdom) UK-based risk analysis company Maplecroft.

Costs can escalate quickly when transport or major production hubs are disrupted for more than a few days, which can in turn threaten food and water supplies and energy and communication networks, the report said.

Climate change and water scarcity will only add to risks, putting even more pressure on infrastructure and resources.

Experts have been warning governments over the past few years that they are not properly prepared to deal with national crises.

The UK government came under fire in 2007 for its lack of preparation and response to severe floods, which cost the economy £3,2 billion.

The think-tank recommended various ways to improve responses from governments and businesses to extreme events.

It particularly highlighted social media networks as a useful “one-stop shop” for information in the event of a crisis. In the London riots last year, social networks such as Twitter proved invaluable for many people to track the rioters’ movements across the UK capital and take precautions.