The Bills Are Now Due

Worse to come for economy, warns Brown
Ashley Seager in Davos

There is worse to come for the world economy, Gordon Brown warned today. He also said banks had been guilty of under pricing risk and doing too much off-balance sheet activity.

The prime minister, addressing the World Economic Forum in Davos, said: "This is a testing time for the global economy and those of us who believe in free markets, flexible economies and sustainable globalization. There is also a danger, with bad news still to come, of being over-optimistic about what we can achieve and over-emphasizing the silver lining at the expense of the clouds."

The prime minister's spokesman later clarified that Brown had been speaking in general and was not indicating that, for example, another British bank was in trouble. Brown said the credit crisis had been caused by an under pricing of risk in financial markets which was only now being corrected. "There has also been too much off-balance sheet activity." He was referring to investments such as collateralized debt obligations blamed for exacerbating the credit crunch.

Brown predicted that the world economy would slow this year, growing by 3-4% instead of the robust 5% of the past few years. He said to mitigate the crisis, authorities had to get monetary and fiscal policy right, which analysts said was a veiled hint to the Bank of England to cut interest rates at its next meeting. Global institutions such as the International Monetary Fund needed to set up better early warning systems to ensure such crises did not cause such shocks in future.

Governments should nevertheless avoid heavy-handed regulation or protectionism in response to the credit crunch. "The challenge is to show we can make the world trade talks work and avoid protectionism. I think there is a danger. I see it in parts of Europe and the US."

Brown was joined on a platform by Microsoft chairman Bill Gates, rock star Bono and Queen Rania of Jordan in launching a fresh appeal to the international community to honour commitments to meet the millennium development goals by 2015. He said: "The millennium goals will not be met in 2015 unless we recognize that we now have an emergency and have to act now. This is a call to action."

The goals were agreed under the auspices of the United Nations in 2000 and the leading one was to halve extreme poverty and hunger by 2015. Queen Rania said some progress had been made but it had now slowed down. "We have a development emergency. Just because it does not look like a disaster, like a tsunami, it does not make this crisis any less urgent. There is so much to do but very little time."

Gates, who has given away much of his fortune to the Gates Foundation which is fighting Aids and malaria in Africa, described the millennium goals as "the most important work in the world".

Bono said he was "pissed off" that things had slowed after initial successes. "We now have 29 million more children in school and 2 million Africans now have anti-retroviral drugs and no more malaria in some parts." He added: "The good news makes the bad news worse."