A “polycrisis” of interconnected environmental, geopolitical, and socioeconomic risks could have profound effects on the supply and demand of natural resources over the next decade, according to the Global Risks Report.
47 countries were surveyed in the World Economic Forum’s (WEF) executive opinion survey listed “severe commodity price shocks or instability” as the top five risks over the next two years, while “severe commodity supply crises” were listed as a more localized risk… as a top five company in 34 countries, including Switzerland, South Korea, Singapore, Chile, and Turkey.
The World Economic Forum’s 2023 Global Risks Report, produced in partnership with Marsh McLennan and Zurich Insurance Group, is based on the insights of more than 1,200 global risk experts, policymakers, and industry leaders.
More than 80% of respondents said they expect continued volatility for at least the next two years, with multiple shocks adding to the different trends. However, the report notes that respondents are generally more optimistic about the long term. Over the next ten years, slightly more than half of respondents anticipate a negative outlook, while nearly one-fifth anticipates limited volatility and relative — and possibly renewed — stability.
This view is consistent with the International Monetary Fund’s forecast of an imminent slowdown in global inflation from nearly 9% in 2022 to 6.5% this year and 4.1% in 2024
Energy, raw materials, and cyber security causing global supply disruptions will further influence investment decisions. “At a time when countries and organizations should be stepping up their sustainability efforts, economic headwinds are limiting their ability to do so,” said Carolina Klint, head of risk management for continental Europe at Marsh. “Faced with the most challenging geoeconomic conditions in a generation, companies must focus not only on solving short-term problems but also on developing strategies that will put them to good use for long-term de-risking and restructuring.”
Geo-economic war
“Geo-economic confrontation” was the third most important risk over the next two years, according to respondents. Geoeconomic confrontation, including sanctions, trade wars, and investment scrutiny, was ranked as the top five threat over the next two years among the 42 countries examined in the report, and was the biggest risk for many countries in East and Southeast Asia, among others. While shortened supply chains may be intended to reduce the risks associated with geopolitical and economic disruptions, they may inadvertently increase exposure to geographically concentrated risks, including labour shortages, civil unrest, pandemics, and natural weather events, the report warns.
The report added that economic warfare is becoming the norm and that respondents expect global power clashes and state interventions to increase over the next two years. This can lead to the defensive use of economic policy to increase independence and sovereignty and the offensive use of policy to limit the rise of other countries.
“Intensified geopolitical weaponry highlights the vulnerabilities that arise from the commercial, financial, and technological interdependence of globally integrated economies, risking a cycle of mistrust and disengagement,” the report said. “As geopolitics trumps economics, a long-term increase in inefficient production and price increases are more likely.” Geographic hotspots critical to the efficient functioning of the global financial and economic system are also of greater concern, particularly in the Asia-Pacific region.
Climate and environmental risks are another central focus of the global risk outlook for the next decade and are the risks for which we are least prepared, according to the report.
Addressing resource competition
The report calls on countries to work together to avoid “resource competition.” “If the world does not cooperate more effectively on climate mitigation and adaptation, it will lead to global warming and ecological degradation over the next decade,” it said. “Failure to mitigate and adapt to climate change, natural disasters, loss of biodiversity, and environmental degradation are five of the top 10 risks, and loss of biodiversity is considered one of the fastest declining global risks in the next decade.”
This goes hand-in-hand with crisis-driven governance and geopolitical competition, which together pose the threat of “societal distress” and can lead not only to geo-economic armaments but also to remilitarization. This could lead to deeper difficulties in energy and food supply, which are likely to continue for the next two years, and a sharp rise in the cost of living and debt costs.
“The window for the most serious long-term threats is fast closing, and collective action is needed before risks reach a tipping point,” the report said. The coming years will therefore bring difficult trade-offs for governments facing competing social, environmental, and security concerns. Without their own development trajectory, vulnerable countries can enter “perpetual crisis mode,” where they cannot invest in future growth, human development, or green technology.
“The short-term world of risk is dominated by energy, food, debt, and disasters.” Those who are already most vulnerable will suffer, and the number of people classified as vulnerable to multiple crises is rising rapidly in both rich and poor countries. In this already toxic combination of known and growing global risks, a new shock event, from a new military conflict to a new virus, could become unmanageable. “Climate and human development must therefore be at the centre of global leaders’ concerns to build resilience against future shocks,” said Saadia Zahidi, CEO of the World Economic Forum.
