* IMF chief sees rising threat of social and political
instability
* Says world faces prospect of a “lost generation” of young
people
* Pattern of earlier global imbalances re-emerging

SINGAPORE, Feb 1 (Reuters) – The world economy is beset by
problems such as high unemployment and rising prices which could
fuel trade protectionism and even lead to war within nations,
the head of the International Monetary Fund warned on Tuesday.
Rising food and fuel prices in recent months have already
hit poorer countries and are one of the factors behind massive
anti-government protests in Egypt and in Tunisia, whose
president was ousted last month.
“As tensions between countries increase, we could see rising
protectionism — of trade and of finance. And as tensions within
countries increase, we could see rising social and political
instability within nations – even war,” Dominique Strauss-Kahn
said in a speech in Singapore.
Strauss-Kahn noted two “dangerous” imbalances that he said
could sow the seeds of the next crisis.
The first was the unbalanced recovery across countries, as
emerging nations grow much faster than developed economies and
possibly overheat. The second was the social strains within
countries with high unemployment and widening income gaps.
Over the next decade, 400 million young people would join
the global labour force, posing a daunting challenge for
governments, Strauss-Kahn added.
“We face the prospect of a ‘lost generation’ of young
people, destined to suffer their whole lives from worse
unemployment and social conditions. Creating jobs must be a top
priority not only in the advanced economies, but also in many
poorer countries.”
Unemployment stands at 9.4 percent in the United States
while European countries are struggling to create jobs.
Despite high joblessness in the wake of the 2008 global
credit crisis, trade barriers have not reached levels feared by
many analysts. Instead, a number of countries, most prominently
China according to its critics, have sought to keep their
currencies undervalued to keep exports humming.
“The pre-crisis pattern of global imbalances is
re-emerging,” Strauss-Kahn said.
“Growth in economies with large external deficits, like the
U.S., is still being driven by domestic demand. And growth in
economies with large external surpluses, like China and Germany,
is still being powered by exports.”
Strauss-Kahn said the IMF expected subdued growth of 2.5
percent for advanced economies this year as high unemployment
and household debt weighed on domestic demand.
Emerging markets would grow at a faster pace of 6.5 percent,
with Asia excluding Japan expanding by 8.5 percent, he said.
Strauss-Kahn said the “global growth gap” was straining the
recovery in other ways, with energy prices rising swiftly,
reflecting the rapid growth in emerging economies.
“Food prices are rising too — though here supply shocks are
the main reason with potentially devastating consequences
for low-income countries. Together, these price increase are
beginning to feed into headline inflation,” he said.
The U.N. food agency said last month that global food prices
hit a record high in December, above 2008 levels when riots
broke out in countries as far afield as Egypt, Cameroon and
Haiti.
Strauss-Kahn added that foreign exchange rate adjustments
had an important role to play in addressing global economic
imbalances and should not be resisted.
“Holding back such adjustment in one country also makes it
harder, and more costly, for other countries to let their
exchange rate adjust,” he said.
Chinese policymakers were moving in the right direction by
taking steps to bolster domestic demand, he noted. The United
States and many other Western countries continue to push Beijing
to let its yuan currency appreciate faster.
http://ca.news.yahoo.com/global-imbalances-returning-could-fuel-unrest-imf-chief-20110131-220131-043.html