A global risk landscape in which progress in human development is slowly being chipped away and leaving states and individuals vulnerable to new and resurgent risks is emerging, according to the World Economic Forum’s (WEF) Global Risk Report 2024.
The report argues that “cooperation on urgent global issues could be in increasingly short supply, requiring new approaches to addressing risks”.
The report covered the issues affecting risk - such as mis and disinformation, which could cause issues for investment teams at insurers by destabilising economies in which they hold long-term assets.
Two-thirds of global experts anticipate a multipolar or fragmented order to take shape over the next decade, in which middle and great powers contest and set – but also enforce – new rules and norms.
“The investment universe is huge, but [our size means] we have an influence
on institutional investors.”
The report was launched on Wednesday in London, in conjunction with Marsh McLennan and Zurich Insurance.
Speaking at a press conference for its launch, John Scott, Head of Sustainability Risk, Zurich Insurance Group, said the risks highlighted in the report were prescient for insurers due to their size and scope as investors.
“The insurance industry are very big investors and we do have an influence on the investment world,” he said. “The investment universe is huge, but [our size means] we have an influence on institutional investors.”
Scott also highlighted it was essential for insurers to be involved and address the concerns in the report because of their widespread risk expertise and abilities around modelling and reaching out to policymakers.
The report was compiled from the answers of 1,490 experts across academia, business, government, the international community and civil society between September and October 2023.
It also draws on the World Economic Forum’s Executive Opinion Survey (EOS) to name risks that pose the most severe threat to each country over the next two years, as identified by over 11,000 business leaders in 113 economies, which could also affect insurers' portfolios.
Saadia Zahidi, Managing Director, WEF, said that the report highlighted a “fairly pessimistic outlook” for the short-term that would lead to a “progressive worsening of that outlook in the next ten years.”
Zahidi added that the report showed that climate change was no longer seen as a ‘risk’ but a structural force affecting other risks.
The biggest risks for the next two years were misinformation and disinformation, with extreme weather events, societal polarisation, cyber insecurity, and interstate armed conflict rounding out the top five.
“Many of the problems of the past few years have been overcome but they could
come back though if we move too fast.”
The two economic risks in the top ten were inflation (seventh) and economic downturn (ninth).
However, the ten-year outlook was devoid of economic risk, which showed that most of those interviewed saw the current economic climate as transient; the long-term risks were dominated by environmental concerns that took up half the top ten. The others were misinformation and disinformation (fifth) and concerns around artificial intelligence (AI) at number six.
“Short term issues around AI are not too high,” said Zahidi, “but become more pressing in the [long-term] outlook.”
One issue highlighted around AI and mis/disinformation was the use of deep fake videos and how this could erode democracy and trust in institutions as a way to destabilise countries and attack their economies. Cases of this have allegedly been seen in Taiwan's election campaign.
Speaking on the economic outlook, Zahidi said the global economy was heading for a softer landing than previously thought after the inflation event and recessionary conditions post-Covid-19 in 2022 and 2023 and was on a positive trajectory.
“Many of the problems of the past few years have been overcome but they could come back though if we move too fast.”
Zahidi also said that the difference between developed and developing economies would likely become more stark in coming years, which could be detrimental to those investing in emerging markets, as a lack of access to green technologies could stall progress.
In a worst-case scenario, Zahidi warned, there could be a stagnation of living standards in the developing world that eroded the social contract between citizens and government built on the idea that “every generation would have a better life than the one before it”.
The report said that economic strains were growing in the short term. “There are multiple sources of continued supply-side price pressures looming over the next two years, from El Niño conditions to the potential escalation of live conflicts,” it said.
“Economic uncertainty will weigh heavily across most markets, but capital will be the costliest for the most vulnerable countries,” it said. “Climate-vulnerable or conflict-prone countries stand to be increasingly locked out of much-needed digital and physical infrastructure, trade and green investments and related economic opportunities as the adaptive capacities of these fragile states erodes further, related societal and environmental impacts are amplified.”
“Some forecasts are already pricing in up to 2.4% economic growth for 2024,
and others predict rate cuts in the early half of the year."
One area highlighted was China’s recent economic stress, but despite this, there was higher investment in manufacturing and energy infrastructure, which had replaced the local construction industry’s economic power in the country.
Inflation and economic downturn results also focused on the US’s uncertain economic path. “Some forecasts are already pricing in up to 2.4% economic growth for 2024, and others predict rate cuts in the early half of the year,” the report said. “Fiscal policy has remained loose even as monetary policy tightened, with the US running a $1.7 trillion deficit in 2023, effectively doubling the deficit in the past year alone.”
The report warned that this could continue to keep demand-driven price pressures high. “The correlation between consumer sentiment and spending is also adding to uncertainty: economic pessimism may be widespread, but it is not necessarily dampening demand – yet. On the other hand, debt servicing hit over $981 billion in Q3 2023 – an increase of over $753 billion compared to the same period in 2022.”
The report also warned of debt issues resulting from the high-interest rate conditions and will put pressure on small to medium-sized enterprises in multiple countries, which could hit other parts of portfolios – such as commercial real estate.
“As struggling companies cut costs, unemployment may rise, reducing consumer spending and creating a negative feedback loop that can contribute to a deeper economic downturn,” it said.