Food and energy prices weaponized by the war in Ukraine. Compounding crises from health and economic aftereffects of the COVID-19 pandemic. Inflation soaring to levels unseen in decades.
It's little wonder the World Economic Forum's Global Risks Report on Wednesday, based on more than 1,200 experts' insights, finds the biggest short-term risk to the world economy is today's globalized cost-of-living crisis and widespread social unrest.
The WEF report called this decade the turbulent 20s and the "age of the polycrisis" as nations grapple with persistent economic and supply shocks stemming from geopolitical conflicts, inflation and monetary policy tightening – and as governments, companies and individuals are left to contend with wider inequality. In the long run, climate change is the biggest economic challenge.
"A continued push for national resilience in strategic sectors will come at a cost – one that only a few economies can bear," Saadia Zahidi, a WEF managing director, says in a preface. "Geopolitical dynamics are also creating significant headwinds for global cooperation, which often acts as a guardrail to these global risks."
The new report, co-authored with insurance broker Marsh McLennan and Zurich Insurance Group, precedes next week's annual meeting in the Swiss resort town of Davos where more than 2,700 participants are expected. This year's theme focuses on a need for more cooperation in a fragmented world beset by war and conflicts.
It says this decade has begun as a particularly disruptive period in human history in which efforts to return to a “new normal” from the pandemic was quickly disrupted by Russia's invasion of Ukraine and cascading crises in food and energy.
"As 2023 begins, the world is facing a set of risks that feel both wholly new and eerily familiar," the report says, while old problems returned with a vengeance:
"We have seen a return of 'older' risks – inflation, cost-of-living crises, trade wars, capital outflows from emerging markets, widespread social unrest, geopolitical confrontation and the spectre of nuclear warfare – which few of this generation’s business leaders and public policy-makers have experienced."
But these challenges are amplified by "comparatively new developments in the global risks landscape," the report says.
These include unsustainable levels of debt, a new era of low growth, and low global investment and de-globalization. There also has been unconstrained development of dual-use (civilian and military) technologies, and rising climate impacts that make adhering to the Paris Agreement's 1.5° Celsius of warming seem unrealistic.
Importance of resilience
The next decade will be characterized by environmental and societal crises, driven by underlying geopolitical and economic trends, the report says.
Many economists have anticipated a recession for 2023. Inflation has hit record highs, consumer spending has weakened, and interest rates have shot up.
The cost-of-living crisis is ranked as the most severe global risk over the next two years, peaking in the short term, according to WEF's experts. Biodiversity loss and ecosystem collapse is seen as another fast deteriorating global risk this decade.
Business risks range from intensifying cyberattacks that are outstripping companies' ability to handle them, which has led to supply chain disruptions and high costs, said Carolina Klint, a European risk management leader at Marsh.
Space junk and debris also pose a huge risk to global communications and space exploration, she told a WEF press briefing, demonstrating the need for companies to improve their organizational resilience, which is "a journey, not a destination."
