“Cost of- living crisis” is ranked as the most severe global risk over the next two years, while Climate action failure dominates the next decade , according to World Economic Forum’s latest report.
Apart from this, the report, Global Risks Report 2023, said that “Energy supply crisis”, “Rising inflation”, “Food supply crisis” and “Cyberattacks on critical infrastructure” are the other top risks for 2023.
The report views “biodiversity loss and ecosystem collapse” as one of the fastest deteriorating global risks over the next decade, and all six environmental risks feature in the top 10 risks over the next 10 years. Nine risks are featured in the top 10 rankings over both the short and the long term, including “Geoeconomic confrontation” and “Erosion of social cohesion and societal polarisation”, alongside two new entrants to the top rankings: “Widespread cybercrime and cyber insecurity” and “Large-scale involuntary migration”.
In the preface, World Economic Forum Managing Director Saadia Zahidi said, “the health and economic after effects of the pandemic have quickly spiralled into compounding crises. Carbon emissions have climbed, as the post-pandemic global economy fired back up. Food and energy have become weaponized by the war in Ukraine, sending inflation soaring to levels not seen in decades, globalizing a cost-of-living crisis and fuelling social unrest. The resulting shift in monetary policy marks the end of an economic era defined by easy access to cheap debt and will have vast ramifications for governments, companies and individuals, widening inequality within and between countries.”
She further said that economies and societies would not easily rebound from continued shocks. In this year’s Global Risks Perception Survey, more than four in five respondents anticipated consistent volatility over the next two years, she said. “The persistence of these crises is already reshaping the world that we live in, ushering in economic and technological fragmentation. A continued push for national resilience in strategic sectors will come at a cost – one that only a few economies can bear. Geopolitical dynamics are also creating significant headwinds for global cooperation, which often acts as a guardrail to these global risks,” she said.
The 2023 edition of the Global Risks Report highlights the multiple areas where the world is at a critical inflection point. It is a call to action, to collectively prepare for the next crisis the world may face and, in doing so, shape a pathway to a more stable, resilient world.
RISKS OF STAGNATION, DIVERGENCE AND DISTRESS
The authors say that economic after effects of COVID-19 and Ukraine war have ushered in sky rocketing inflation, a rapid normalization of monetary policies and started a low-growth, low-investment era. The report warned that Governments and central banks could face stubborn inflationary pressures over the next two years.
Noting that downside risks to economic outlook would also loom large, the authors said, “a miscalibration between monetary and fiscal policies will raise the likelihood of liquidity shocks, signalling a more prolonged economic downturn and debt distress on a global scale. Continued supply-driven inflation could lead to stagflation, the socio-economic consequences of which could be severe, given an unprecedented interaction with historically high levels of public debt. Global economic fragmentation, geopolitical tensions and rockier restructuring could contribute to widespread debt distress in the next 10 years.
Moreover, the WEF feels 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. A such, the WEF calls for enhanced social protections in countries across the world.
Governments will continue to face a dangerous balancing act between protecting a broad swathe of their citizens from an elongated cost-of-living crisis without embedding inflation – and meeting debt servicing costs as revenues come under pressure from an economic downturn, an increasingly urgent transition to new energy systems, and a less stable geopolitical environment. The resulting new economic era may be one of growing divergence between rich and poor countries and the first roll-back in human development in decades.
GEOECONOMIC WARFARE AND MULTI-DOMAIN CONFLICTS
The report states that economic warfare is becoming the norm, with increasing clashes between global powers and state intervention in markets over the next two years. “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,” the authors said. Intensive geoeconomic weaponization will highlight security vulnerabilities posed by trade, financial and technological interdependence between globally integrated economies, risking an escalating cycle of distrust and decoupling, they added.
The report states that a longer-term rise in inefficient production and rising prices are more likely as geopolitics trumps economics.
Further, the authors maintain that Interstate confrontations are anticipated by GRPS respondents to remain largely economic in nature over the next 10 years. However, the recent up tick in military expenditure and proliferation of new technologies to a wider range of actors could drive a global arms race in emerging technologies.
TECHNOLOGY TO EXACERBATE INEQUALITIES; CYBER SECURITY A CONSTANT CONCERN
Spurred by state aid and military expenditure, as well as private investment, research and development into emerging technologies will continue at pace over the next decade, yielding advancements in AI, quantum computing and biotechnology, among other technologies. 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.
However, the rapid development and deployment of new technologies, which often comes with limited protocols governing their use, poses its own set of risks. a rise in cybercrime, attempts to disrupt critical technology-enabled resources and services will become more common, with attacks anticipated against agriculture and water, financial systems, public security, transport, energy and domestic, space-based and undersea communication infrastructure.
CLIMATE MITIGATION AND CLIMATE ADAPTATION
Stating that climate and environmental risks are the core focus of global risks perceptions over the next decade, the report points out that the world is least prepared for these risks. “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,” the report said.
Nature loss and climate change are intrinsically interlinked – a failure in one sphere will cascade into the other. 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, the authors said.
FOOD, FUEL AND COST CRISES
In the report, he WEF points out that associated social unrest and political instability will not be contained to emerging markets, as economic pressures continue to hollow out the middle-income bracket. Further, the report said that mounting citizen frustration at losses in human development and declining social mobility, together with a widening gap in values and equality, are posing an existential challenge to political systems around the world.
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.
POLYCRISES
Concurrent shocks, deeply interconnected risks and eroding resilience are giving rise to the risk of poly crises – where disparate crises interact such that the overall impact far exceeds the sum of each part.
The report describes four potential futures centred around food, water and metals and mineral shortages, all of which could spark a humanitarian as well as an ecological crisis – from water wars and famines to continued overexploitation of ecological resources and a slowdown in climate mitigation and adaption.
