Here is the first part of a summary of its key findings
Sabine Boston, 27 January 2023
The World Economic Forum (WEF) is an international non-governmental organization based in Switzerland that, among other things, releases a yearly Global Risk Report. This report gathers insights from over 1,200 experts across academia, business, government, the international community, and civil society. The report’s focus points are the top crises we’re facing now and in the next two years, crises we can expect in the next ten years, and what future outcomes we can expect because of them. The report as a whole is insightful, if a touch dark, and offers a good look at what problems we should be focusing on fixing, hopefully before they occur. The report is very detailed, but over a few posts we’ll summarise its main findings into more approachable chunks.
To start things off, it should be noted that “’Global risk’ is defined 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.”
As 2023 begins, the world is facing a set of risks that feel both wholly new and eerily familiar. We have seen a return of ’older‘ risks – inflation, cost-of-living crises, trade wars, widespread social unrest, geopolitical confrontation, and the spectre of nuclear warfare. Adding to that there are new developments in the global risks landscape, including unsustainable levels of debt, a new era of low growth, de-globalisation, a decline in living standards, rapid and unconstrained development of dual-use (civilian and military) technologies, and the growing pressure of climate change impacts. All together, these are creating a rather heavy potential for the decade to come.
As multiple different issues become more prevalent, the risk of ‘poly-crises’ accelerates (interconnected risks that create problems bigger than the sum of their own parts).
The most pressing five crises in 2023 are:
· The cost-of-living crisis
· Economic downturns
· Economic warfare on a global scale
· Climate action lagging further behind what’s required to keep global warming with 1.5 (or even 2) degrees
· Societal polarisation.
Ranked as the most severe global risk over the next two years, a global Cost-of-living crisis is already here, with inflationary pressures disproportionately hitting those that can least afford it. It can definitely be seen and felt here in New Zealand, with every third article from any news source pointing out the rise in costs of everything from petrol to fruit and vegetables.
Even before the COVID-19 pandemic, the price of basic necessities was on the rise, but now the increases can be credited partially to the disruptions to energy and food coming out of Eastern Europe. To curb domestic prices, around 30 countries have introduced restrictions, including export bans in food and energy last year, further driving up global inflation.
A combination of extreme weather events and constrained supply could lead the current cost-of-living crisis into a worse scenario, with increased costs and general shortages leading humanitarian crises in poorer parts of the world. There’s a possibility of a global food supply crisis occurring in 2023. The continuation of the war in Ukraine, the lagged effect of a price spike in fertilizer last year, and the impact of extreme weather conditions on food production in key regions have combined to make a potentially very large problem. Estimates suggest that over 800,000 hectares of farmland were wiped out by floods in Pakistan – increasing commodity prices significantly in a country that was already grappling with record 27% inflation. Predicted droughts and water shortages may cause a decline in harvests and livestock deaths across East Africa, North Africa, and Southern Africa, exacerbating food insecurity. Although some regions anticipate above-average yields next year, there’s always the possibility of unexpected production or transportation shocks, as we’ve seen with the ups and downs of international freight over the past few years.
Managing inflation is a worldwide concern, it was ranked as the top threat in a number of G20 countries, inflationary pressures have affected both developed and developing economies. Inflation rates rose above 80% in Argentina and Türkiye, while Zimbabwe, the Bolivarian Republic of Venezuela, Lebanon, the Syrian Arab Republic, and Sudan witnessed triple-digit inflation. The United States of America peaked above 9% in June last year, and hit record highs in the United Kingdom and the Eurozone in October, at 11.1% and 10.6% respectively, forcing interest rates higher.
Even if the economic fallout remains comparatively contained, global growth is forecast to slow to 2.7% in 2023, with around one-third of the world’s economy facing a technical recession. It’s the third weakest growth profile in over 20 years.
Sri Lanka’s recent crisis provides a very real example of the spiraling risks to human security and health that can arise from economic distress. A debt default and shortage in foreign currency limited imports, which then disrupted access to food, fuel, healthcare, and electricity, which led to violent protests and the resignation of the President.
Geoeconomic confrontation – including sanctions, trade wars and investment screening – was considered a top-five threat over the next two years among 42 countries surveyed by the EOS and featured as the top risk in many East and South-East Asian countries, among others. In comparison, “Interstate conflict” was ranked as a top-five risk in 28 countries surveyed by the EOS.
Economic levers are being used to proactively constrain the rise of rivals. This includes delisting of foreign companies, extensive use of the foreign direct product rule, and export controls on key technologies and intellectual property, as well as broad constraints on those working with designated foreign companies. More extensive deployment of economic levers to meet geopolitical goals can be a vicious and escalating cycle of distrust. As costs of compliance with differing political and economic systems climb, multinational companies may pick sides, speeding up divergence between various market models. While intended to lower risks associated with geopolitical and economic disruption, shortened supply chains may also unintentionally heighten exposure to geographically concentrated risks, including labour shortages, civil unrest, pandemics, and natural weather events.
Climate action hiatus
Despite 30 years of global climate advocacy and diplomacy, the international system has struggled to make the required progress on climate change. The potential failure to address this existential global risk first entered the top rankings of the Global Risks Report over a decade ago, in 2011. Current pressures should result in a turning point, encouraging energy-importing countries to invest in “secure”, cleaner and cheaper renewable energy sources. Yet geopolitical tensions and economic pressures have already limited – and in some cases reversed – progress on climate change mitigation, at least over the short term. For example, the EU spent at least EUR50 billion on new and expanded fossil-fuel infrastructure and supplies, and some countries restarted coal power stations.
Policy-makers are increasingly confronted by perceived trade-offs between energy security, affordability and sustainability. There is also growing recognition that not only the pace of the transition but also effectiveness and integrity matter. Indeed, with 1.2°C of warming already in the system, the compounding effect of a changing climate is already being felt, magnifying humanitarian challenges such as food insecurity. As floods, heatwaves, droughts, and other extreme weather events become more severe and frequent, a wider set of populations will be affected. The diversion of attention and resources towards adapting to these new issues, rather than solving them, may further slow progress on global-warming targets in the economies that remain the biggest contributors to greenhouse gas emissions.
Defined as “the loss of social capital and fracturing of communities leading to declining social stability, individual and collective wellbeing, and economic productivity” it ranked as the fifth-most severe global risk faced in the short term. It was also seen as one of the most strongly influenced risks in the global network, triggered by many other long- and short-term potential risks including debt crises and state instability, cost-of-living crises and inflation, and a prolonged economic downturn and climate migration. A widening gap in values and equality is posing an existential challenge as economic and social divides are translated into political ones. Polarisation on issues such as immigration, gender, reproductive rights, ethnicity, religion, climate, and even secession and anarchism have characterised recent elections, referendums, and protests around the world.
Mounting citizen frustration at perceived gaps in direct governmental action manifested in frequently divisive and unruly civil protests last year. More protests were observed between January and October than in all of 2021. Divisions incentivise the adoption of short-term, more extreme policy platforms to galvanise one side of the population and perpetuate populist beliefs. As such, a large proportion of the population can feel alienated and angered by leadership in the following term, acting as a multiplier to existing societal concerns and civil unrest. ‘Misinformation’ and ‘disinformation’ together are an accelerant to the erosion of social cohesion as well as a consequence. With the potential to destabilise trust in information and political processes, it has become a prominent tool for geopolitical agents to propagate extremist beliefs and sway elections through social media echo chambers.
Regulatory constraints and educational efforts have failed to keep pace, and its impact will expand with the more widespread usage of automation and machine-learning technologies, from bots that imitate human-written text to deepfakes. Often, hardened polarisation on key issues lead to government gridlocks. Additionally, although less likely in more democratically robust states, an increasing presence of anocracies and factionalism may radicalise polarisation. This could lead to increased incidences of threat campaigns and political violence, hate crimes, violent protests, and even civil war. Social and political polarisation may also further reduce the space for collective problem-solving to address global risks.
National elections will take place in several G20 countries within the next two years, including the United States of America, South Africa, Türkiye, Argentina, Mexico, New Zealand, and Indonesia. The election of less-centrist leaders and adoption of more ‘extreme’ policies in economic superpowers may fracture alliances, limit global collaboration and lead to a more volatile dynamic.
The next two years
Nearly one in five respondents felt optimistic about the outlook for the world in the longer term, predicting limited volatility with relative – and potentially renewed – stability over the next 10 years. Yet, over half anticipated progressive tipping points and persistent crises leading to catastrophic outcomes over the next 10 years, or consistent volatility and divergent trajectories. Notably, younger age groups were more hopeful for the future: one in three respondents under the age of 40 shifted to a neutral or positive stance over the longer time frame. As the confluence of current crises distracts focus and resources from risks arising over the medium to longer-term horizon, we may face increasing burdens on natural and human ecosystems.