Five Macro Risks
The World Economic Forum has recently released their sixth edition of the Global Risks Report. When they started issuing this report in 2006, many of the largest economies in the world were sailing along. To imagine world class risks took a vivid imagination. After the Global Financial Crisis, they now suggest “The world is in no position to face major, new shocks. The financial crisis has reduced global economic resilience, while increasing geopolitical tension and heightened social concerns suggest that both governments and societies are less able than ever to cope with global challenges.”
They highlight five risks:
- Cyber-security issues ranging from the growing prevalence of cyber theft to the little-understood possibility of all-out cyber warfare
- Demographic challenges adding to fiscal pressures in advanced economies and creating severe risks to social stability in emerging economies
- Resource security issues causing extreme volatility and sustained increases over the long run in energy and commodity prices, if supply is no longer able to keep up with demand
- Retrenchment from globalization through populist responses to economic disparities, if emerging economies do not take up a leadership role
- Weapons of mass destruction, especially the possibility of renewed nuclear proliferation between states
The following graph that they draw from the IMF provides some startling perspective on the looming demographic/fiscal crisis in the developed countries, all with shrinking and rapidly aging populations:
This chart suggests that the unfunded old age pension liability for the advanced nations is on the average 8 times as large as the debt incurred fighting the financial crisis! This was called The World’s Largest Risk on that post.
According to the “experts” that the WEF polls as a part of their research, these are the most significant risks of the near future (frequency x severity):
1 Climate change
2 Fiscal crises
3 Economic disparity
4 Global governance failures
5 Extreme weather events
6 Extreme energy price volatility
7 Geopolitical conflict
10 Water security
Get your own copy of the report here.
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