Cost of living concerns will “dominate global risks” for the next two years, according to the World Economic Forum Global Risks Report 2023, released Wednesday. In the long run, this could herald a “rollback in human development.”
“The economic aftereffects of COVID-19 and the war in Ukraine have ushered in skyrocketing inflation, a rapid normalization of monetary policies and started a low-growth, low-investment era,” the report explained.
“The first years of this decade have heralded a particularly disruptive period in human history,” said the report. Overall risks include inflation, cost-of-living crises, trade wars, capital outflows from emerging markets, widespread social unrest, geopolitical confrontation and the threat of nuclear warfare.
Here are the top 10 risks for the next two years:
1. Cost of living crisis
2. Natural disasters and other extreme weather events
3. Geoeconomic confrontation
4. Failure to mitigate climate change
5. Erosion of social cohesion and societal polarization
6. Large scale environmental damage incidents
7. Failure of climate-change adaptation
8. Widespread cybercrime and cybersecurity
9. Natural resource crises
10. Lage scale involuntary migration
Just as the world was easing into a “new normal” while still in the grasp of a pandemic that has already claimed nearly 6.7 million lives, Russia’s invasion of the Ukraine early last year again upended the global economy. Since then, the U.S. and other nations have struggled with inflation.
In the short term, “governments and central banks could face stubborn inflationary pressures,” due to supply chain issues caused by lingering pandemic disruption and economic warfare.
A common method to curb inflation – when goods and services balloon in price – is raising interest rates, making it more expensive to borrow money. However, the report noted that “the end of the low interest rate era will have significant ramifications for governments, businesses and individuals.”
The forum warned that a “miscalibration between monetary and fiscal policies will raise the likelihood of liquidity shocks,” and could bring a more prolonged economic downturn. If continued supply-driven inflation leads to stagflation, socioeconomic impacts could be severe due to “unprecedented interaction with historically high levels of public debt.”
These pressures would impact already vulnerable segments of society most, and the forum predicts this will contribute to rising poverty, hunger, violent protests, political instability and potential state collapse. Gains made by middle-income households are also expected to erode, which could lead to “discontent, political polarization and 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,” said the report. “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.”
Apart from inflation, the World Economic Forum highlighted “geopolitical fragmentation” and “geoeconomic warfare” as threats going forward. In fact, it said “economic warfare is becoming the norm.”
Britannica defines economic warfare as “the use of, or the threat to use, economic means against a country in order to weaken its economy and thereby reduce its political and military power.”
A rise in economic warfare could result in inefficient production and rising prices, said the forum.
While cost of living concerns will dominate over the next two years at least, other issues are expected to crop up over the next decade.
Environmental risks, including “biodiversity loss and ecosystem collapse” will become greater during the next 10 years, said the forum.
Here are the top 10 risks over the next 10 years:
1. Failure to mitigate climate change
2. Failure of climate-change adaptation
3. Natural disasters and extreme weather events
4. Biodiversity loss and ecosystem collapse
5. Large-scale involuntary migration
6. Natural resource crises
7. Erosion of social cohesion and societal polarization
8. Widespread cybercrime and cyber insecurity
9. Geoeconomic confrontation
10. Lage-scale environmental damage incidents
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