DUBAI, United Arab Emirates (AP) — Business leaders gathered in Dubai on Saturday warned the world to brace for even more painful economic times ahead, but said the victory of U.S. President-elect Barack Obama offers hope for fresh leadership at a crucial time for the global economy.
The financial crisis that began with bad U.S. home loans is now moving from the banking sector into wide swaths of the global economy — costing millions of jobs, forcing working families to cut back and driving once-mighty companies into bankruptcy.
The U.S. government said Friday the country’s unemployment rate shot to 6.5 percent, its highest level in 14 years. Jobless rates are rising elsewhere too: The U.N. labor agency said last month that world unemployment will hit 210 million people by the end of next year, its highest rate in the past decade.
How deeply the global downturn will cut remains uncertain, participants at a regional meeting of the World Economic Forum in Dubai said Saturday. While they called for calm, they also acknowledged there is cause for concern.
“We will be telling our children and our grandchildren about this crisis,” said Mohamed El-Erian, co-chief executive of Pacific Investment Management Co., the Newport Beach, Calif.-based investment firm better known as PIMCO. “You cannot turn off the fuel of this crisis easily.”
Consumers in the U.S., for example, are facing the triple whammy of tougher access to credit, rising joblessness and falling home and investment values, El-Erian said.
Cleaning up the fallout will take both time and sacrifice, participants here said.
“It’s going to be really tough,” El-Erian said. “You now have to save even more for retirement. This is a tough time, and it’s important that expectations be formulated accordingly.”
The need to recalibrate spending and expectations was a theme sounded by others as well.
Howard Davies, director of the London School of Economics and Political Science, said residents of countries like the U.S. and the UK have no alternative but to increase savings and reduce household debt.
And, he said, homeowners and individual investors need to accept that a big chunk of the nest eggs they had amassed on paper is likely gone forever.
“People are going to have to recognize the wealth hit and be prepared to move on from that,” he said.
The economic slump is not just affecting Western countries.
Soud Ba’alawy, executive chairman of investment firm Dubai Group, said “each and every business is going to be challenged.” He predicted annual growth in the booming Gulf could slow to as low as 2 to 3 percent, from 6 to 8 percent previously.
Business leaders were hopeful, though, that the future Obama administration will bring a renewed willingness by the world’s largest single-nation economy to work with other countries to fix the global economy.
“You now have a golden opportunity for leadership at a time when leadership is needed both domestically and internationally,” El-Erian said.