“The first years of this decade have heralded a particularly disruptive period in human history,” wrote the World Economic Forum (WEF) in its 18th annual edition of the “Global Risks Report 2023.” “The return to a ‘new normal’ following the COVID-19 pandemic was quickly disrupted by the outbreak of war in Ukraine, ushering in a fresh series of crises in food and energy – triggering problems that decades of progress had sought to solve.” As we stand on the edge of a low-growth and low-cooperation era, “the world faces a set of risks that feel both wholly new and eerily familiar.”
The WEF defines global risk as “the possibility of the occurrence of an event or condition which, if it occurs, would negatively impact a significant proportion of global GDP, population or natural resources.”
The Global Risks Report 2023 is based on two complementary surveys: the Global Risks Perception Survey (GRPS), the WEF source of original risk data, based on the the insights and opinions of over 1,200 experts from academia, business, government, the international community and civil society; and the Executive Opinion Survey (EOS) of over 12,000 business leaders in 121 countries to help identify the risks that pose the biggest threat in each of their countries over the next few yeas.
The report presents its key findings along two distinct timeframes. The short term considers global risks which are already unfolding and which are likely to play out over the next two years. The long term considers global risks that that are likely to be most severe over the next ten years. Let me summarize the report’s key findings.
Cost of living dominates global risks in the next two years while climate action failure dominates the next decade
Cost-of-living crisis was ranked by GRPS respondents as the most severe global risk in the short term, followed by natural disasters and extreme weather events. The cost-of-living crisis is expected to peak within the next two years and ease off thereafter. Inflationary pressures, including the price of basic necessities like food, housing, and energy, have disproportionately affected those that can least afford it.
The longer term global risks are dominated by deteriorating environment risks. Failure of climate-change adaptation, and failure of climate-change mitigation were ranked by GRPS respondents as the top two risks over the next decade, followed by natural disaster and extreme weather events, and biodiversity loss and ecosystem collapse.
As an economic era ends, the next will bring more risks of stagnation, divergence and distress
In a recent article, “Not Just Another Recession: Why the Global Economy May Never Be the Same,” economist Mohamed El-Erian explained that three key structural changes are likely to drive major economic uncertainties in the coming years: the rewiring of global supply chains by geopolitical tensions and other factors; the end of boundless liquidity from central banks due to artificially low interest rates; and the increasing fragility of financial markets, due the rise of riskier financial activities.
“The resulting new economic era may be one of growing divergence between rich and poor countries and the first rollback in human development in decades,” said the WEF report. “The knock-on effects will be felt most acutely by the most vulnerable parts of society and already-fragile states, contributing to rising poverty, hunger, violent protests, political instability and even state collapse. Economic pressures will also erode gains made by middle-income households, spurring discontent, political polarization and calls for enhanced social protections in countries across the world.”
Geopolitical fragmentation will drive geoeconomic warfare and heighten the risk of multi-domain conflicts
The 1990s ushered a golden age of globalization. The world seemed to be coming together, boosting prosperity and democracy at the same time. Nations were becoming more economically interdependent. The Internet fostered worldwide communications. The ideological contest between communism and capitalism appeared to be over. Democracy was spreading a set of universal values — freedom, equality, human rights.
Then “the pace of economic integration stalled in the 2010s, as firms grappled with the aftershocks of a financial crisis, a populist revolt against open borders and President Donald Trump’s trade war,” wrote The Economist in a June, 2022 article. “The flow of goods and capital stagnated. Many bosses postponed big decisions on investing abroad: just-in-time gave way to wait-and-see. No one knew if globalisation faced a blip or extinction.”
GRPS respondents ranked geoeconomics confrontation, — including sanctions, trade wars, and investment screenings, — as the third most severe risk in the short term. “Economic policies will be used defensively, to build self-sufficiency and sovereignty from rival powers, but also will increasingly be deployed offensively to constrain the rise of others. As geopolitics trumps economics, a longer-term rise in inefficient production and rising prices becomes more likely. … Interstate confrontations are anticipated by GRPS respondents to remain largely economic in nature over the next 10 years.”
Technology will exacerbate inequalities while risks from cybersecurity will remain a constant concern
“The technology sector will be among the central targets of stronger industrial policies and enhanced state intervention. For countries that can afford it, these technologies will provide partial solutions to a range of emerging crises, from addressing new health threats and a crunch in healthcare capacity, to scaling food security and climate mitigation. For those that cannot, inequality and divergence will grow. In all economies, these technologies also bring risks, from widening misinformation and disinformation to unmanageably rapid churn in both blue- and white-collar jobs.”
At the same time, cybersecurity threats have been growing. Large-scale fraud, data breaches, and identity thefts have become far more common. International cyberthreats have escalated, with a growing number of high profile attacks by criminal groups and adversarial governments. Cybersecurity is now invoked by governments as a major aspect of national security, as they focus on protecting their critical infrastructures and the overall wellbeing of their nations. Beyond terrorism and national security, cyber threats have the potential to wreak havoc with international trade and the global economy.
Climate mitigation and climate adaptation efforts are set up for a risky trade-off, while nature collapses
“Climate and environmental risks are the core focus of global risks perceptions over the next decade — and are the risks for which we are seen to be the least prepared. The lack of deep, concerted progress on climate action targets has exposed the divergence between what is scientifically necessary to achieve net zero and what is politically feasible.”
“Nature loss and climate change are intrinsically interlinked — a failure in one sphere will cascade into the other,” warns the report. “Without significant policy change or investment, the interplay between climate change impacts, biodiversity loss, food security and natural resource consumption will accelerate ecosystem collapse, threaten food supplies and livelihoods in climate-vulnerable economies, amplify the impacts of natural disasters, and limit further progress on climate mitigation.”
Food, fuel and cost crises exacerbate societal vulnerability while declining investments in human development erode future resilience
Continued economic pressures risk turning the current cost-of living crisis into a serious humanitarian crisis within the next two yeas. This is particularly the case in many lower-income countries which are facing multiple crises, including debt, climate change, and food security.
“Over the next 10 years, fewer countries will have the fiscal headroom to invest in future growth, green technologies, education, care and health systems. The slow decay of public infrastructure and services in both developing and advanced markets may be relatively subtle, but accumulating impacts will be highly corrosive to the strength of human capital and development — a critical mitigant to other global risks faced.”
As volatility in multiple domains grows in parallel, the risk of polycrises accelerates
The WEF defines a polycrisis as a cluster of related global risks that interact with each other with unexpected consequences such that their overall impact is compounded and exceeds the sum of each global risk. In recognition of their growing complexity and uncertainty, the report explores how the interactions of these deeply interconnected risks could evolve into major polycrises by 2030 due to shortages of natural resources and eroding geopolitical cooperation.
The report describes four possible 2030 scenarios based on the degree of global cooperation across national borders and the impact of climate change on the supply of natural resources:
- Resource collaboration: effective climate action measures and flexible supply chains enabled by global cooperation largely absorb the impacts of climate change on food production;
- Resource constraints: slow climate action, exposes the most vulnerable countries to hunger and energy shocks, even as countries cooperate to partially address constraints”;
- Resource competition: distrust drives a push for self-sufficiency in high-income countries, widening the divides between countries; and
- Resource control: geopolitical dynamics exacerbate climate-induced shortages in food and water, resulting in a truly global, multi-resource crisis.
Is preparedness possible?
“Indeed, there is still a window to shape a more secure future through more effective preparedness,” notes the WEF report in conclusion. “Addressing the erosion of trust in multilateral processes will enhance our collective ability to prevent and respond to emerging cross-border crises and strengthen the guardrails we have in place to address well-established risks.”
“Some of the risks described in this year’s report are close to a tipping point. This is the moment to act collectively, decisively and with a long-term lens to shape a pathway to a more positive, inclusive and stable world.”
Comments