World Economic Forum – Digital Finance Analytics (DFA) Blog

Risks To Growth Abound: WEF

The latest WEF reports make salutatory reading. While there are some tentative signs of growth, the risks, from trade through to weather related, abound.

Trade policy uncertainty, geopolitical tensions, and idiosyncratic stress in key emerging market economies continued to weigh on global economic activity—especially manufacturing and trade—in the second half of 2019. Intensifying social unrest in several countries posed new challenges, as did weather-related disasters—from hurricanes in the Caribbean, to drought and bushfires in Australia, floods in eastern Africa, and drought in southern Africa.

In this update to the World Economic Outlook, we project global growth to increase modestly from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021. The slight downward revision of 0.1 percent for 2019 and 2020, and 0.2 percent for 2021, is owed largely to downward revisions for India. The projected recovery for global growth remains uncertain. It continues to rely on recoveries in stressed and underperforming emerging market economies, as growth in advanced economies stabilizes at close to current levels.
There are preliminary signs that the decline in manufacturing and trade may be bottoming out. This is partly from an improvement in the auto sector as disruptions from new emission standards start to fade. A US-China Phase I deal, if durable, is expected to reduce the cumulative negative impact of trade tensions on global GDP by end 2020—from 0.8 percent to 0.5 percent.

The projected recovery for global growth remains uncertain.
The service sector remains in expansionary territory, with resilient consumer spending supported by sustained wage growth. The almost synchronized monetary easing across major economies has supported demand and contributed an estimated 0.5 percentage point to global growth in both 2019 and 2020.
In advanced economies, growth is projected to slow slightly from 1.7 percent in 2019 to 1.6 percent in 2020 and 2021. Export dependent economies like Germany should benefit from improvements in external demand, while US growth is forecast to slow as fiscal stimulus fades.
For emerging market and developing economies, we forecast a pickup in growth from 3.7 percent in 2019 to 4.4 percent in 2020 and 4.6 percent in 2021, a downward revision of 0.2 percent for all years. The biggest contributor to the revision is India, where growth slowed sharply owing to stress in the nonbank financial sector and weak rural income growth. China’s growth has been revised upward by 0.2 percent to 6 percent for 2020, reflecting the trade deal with the United States.
The pickup in global growth for 2020 remains highly uncertain as it relies on improved growth outcomes for stressed economies like Argentina, Iran, and Turkey and for underperforming emerging and developing economies such as Brazil, India, and Mexico.
Risks retreating but still prominent
Overall, the risks to the global economy remain on the downside, despite positive news on trade and diminishing concerns of a no-deal Brexit. New trade tensions could emerge between the United States and the European Union, and US-China trade tensions could return. Such events alongside rising geopolitical risks and intensifying social unrest could reverse easy financing conditions, expose financial vulnerabilities, and severely disrupt growth.
Importantly, even if downside risks appear to be somewhat less salient than in 2019, policy space to respond to them is also more limited. It is therefore essential that policymakers do no harm and further reduce policy uncertainty, both domestic and international. This will help to revive investment, which remains weak.
Policy priorities
Monetary policy should remain accommodative where inflation is still muted. With interest rates expected to stay low for long, macroprudential tools should be proactively used to prevent the build-up of financial risks.
Given historically low interest rates alongside weak productivity growth, countries with fiscal space should invest in human capital and climate-friendly infrastructure to raise potential output. Economies with unsustainable debt levels will need to consolidate, including through effective revenue mobilization. To ensure a timely fiscal response if growth were to slow sharply, countries should prepare contingent measures in advance and enhance automatic stabilizers. A coordinated fiscal response may be needed to improve the effectiveness of individual measures. Across all economies, a key imperative is to undertake structural reforms, enhance inclusiveness, and ensure that safety nets protect the vulnerable.
Countries need to cooperate on multiple fronts to lift growth and spread prosperity. They need to reverse protectionist trade barriers and resolve the impasse over the World Trade Organization’s appellate court. They must adopt strategies to limit the rise in global temperatures and the severe consequences of weather-related natural disasters. A new international taxation regime is needed to adapt to the growing digital economy and to curtail tax avoidance and evasion, while ensuring that all countries receive their fair share of tax revenues.
To conclude, while there are signs of stabilization, the global outlook remains sluggish and there are no clear signs of a turning point. There is simply no room for complacency, and the world needs stronger multilateral cooperation and national-level policies to support a sustained recovery that benefits all.

Global Risks Still Building: WEF

The World Economic Forum has just released their 2020 report, the 15th in the series and they highlight ” long-mounting, interconnected risks” driven by their annual Global Risks Perception Survey which was completed by approximately 800 members of the Forum’s diverse communities.

They conclude that the world “cannot wait for the fog of geopolitical and geo-economic uncertainty to lift. Opting to ride out the current period in the hope that the global system will “snap back” runs the risk of missing crucial windows to address pressing challenges”.

At the time of writing, the IMF expected growth to be 3.0% in 2019—the lowest rate since the economic crisis of 2008-2009.

They say that today’s emerging economies are expected to comprise six of the world’s seven largest economies by 2050. Rising powers are already investing more in projecting influence around the world. And digital technologies are redefining what it means to exert global power. As these trends are unfolding, a shift in mindset is also taking place among some stakeholders—from multilateral to unilateral and from cooperative to competitive. The resulting geopolitical turbulence is one of unpredictability about who is leading, who are allies, and who will end up the winners and losers.

The global economy is faced with a “synchronized slowdown”, the past five years have been the warmest on record, and cyberattacks are expected to increase this year—all while citizens protest the political and economic conditions in their countries and voice concerns about systems that exacerbate inequality.
Indeed, the growing palpability of shared economic, environmental and societal risks signals that the horizon has shortened for preventing—or even mitigating—some of the direst consequences of global risks. It is sobering that in the face of this development, when the challenges before us demand immediate collective action, fractures within the global community appear to only be widening.
Global commerce has historically been a pillar and engine of growth—and a key tool for lifting economies out of downturns—but as we warn, significant restrictions were placed on global trade last year. This comes as G20 economies hold record high levels of debt and exhibit relatively low levels of growth. Ammunition to fight a potential recession is lacking, and there is a possibility of an extended low-growth period, akin to the 1970s, if lack of coordinated action continues. In addition, a potential decoupling of the world’s largest economies, the United States and China, is cause for further concern. The question for stakeholders—one that cannot be answered in the affirmative—is whether in the face of a prolonged global slowdown we are positioned in a way that will foster resiliency and prosperity.
On the environment, we note with grave concern the consequences of continued environmental degradation, including the record pace of species decline. Respondents to our Global Risks Perception Survey are also sounding the alarm, ranking climate change and related environmental issues as the top five risks in terms of likelihood—the first time in the survey’s history that one category has occupied all five of the top spots. But despite the need to be more ambitious when it comes to climate action, the UN has warned that countries have veered off course when it comes to meeting their commitments under the Paris Agreement on climate change.
And on global health and technology, we caution that international systems have not kept up to date with the challenges of these domains. The global community is ill-positioned to address vulnerabilities that have come alongside the advancements of the 20th century, whether they be the widening application of artificial intelligence or the widespread use of antibiotics.
Today’s risk landscape is being shaped in significant measure by an unsettled geopolitical environment—one in which new centres of power and influence are forming—as old alliance structures and global institutions are being tested. While these changes can create openings for new partnership structures, in the immediate term, they are putting stress on systems of coordination and challenging norms around shared responsibility. Unless stakeholders adapt multilateral mechanisms for this turbulent period, the risks that were once on the horizon will continue to arrive.
The good news is that the window for action is still open, if not for much longer. And, despite global divisions, we continue to see members of the business community signal their commitment to looking beyond their balance sheets and towards the urgent priorities ahead.

They highlight the economic risks posed by global runaway climate change. Climate change is striking harder and more rapidly than many expected, with the bushfires that have ravaged Australia – as well as floods and droughts around the world – bringing the issue to the forefront of the global agenda.

They say, “alarmingly, global temperatures are on track to increase by at least 3°C towards the end of the century—twice what climate experts have warned is the limit to avoid the most severe economic, social and environmental consequences”.

The economic threat posed by climate change could impact everything from national economies to the mortgage and insurance industries. Worldwide economic damage from natural disasters in 2018 totalled US$165 billion, with that number set to increase if emissions remain at their current level.

In the United States alone, climate-related economic damage could reach 10 per cent of GDP by the end of the century, while over 200 of the world’s largest firms estimate that climate change will cost them a combined total of nearly US$1 trillion.

But the report says many businesses are still not planning on the physical and financial risks that climate change could have on their activities and value chains.

The WEF warns that avoiding the most severe economic and social consequences of global climate change means limiting global warming to just 1.5 degrees Celsius over pre-industrial levels. This equates to a remaining carbon budget of less than 10 more years of emissions at their current level – and demand for energy is only continuing to increase.

Extreme Weather Heads The Top Global Risks For 2017 – WEF

The World Economic Forum (WEF) has released its annual report on what it believes are the top global risks for 2017. Ahead of next week’s WEF Davos meetings of the world’s top politicians, financiers, and celebrities, “extreme weather events” are identified as the biggest risk for the world.

Here is the The Risks-Trends Interconnections Map which is based on the WEF Global Risks Perception Survey 2016, where Survey respondents were asked to select the three trends that are the most important in shaping global development in the next 10 years.

Here is the executive summary from the 78 page report.

For over a decade, The Global Risks Report has focused attention on the evolution of global risks and the deep interconnections between them. The Report has also highlighted the potential of persistent, long-term trends such as inequality and deepening social and political polarization to exacerbate risks associated with, for example, the weakness of the economic recovery and the speed of technological change. These trends came into sharp focus during 2016, with rising political discontent and disaffection evident in countries across the world. The highest-profile signs of disruption may have come in Western countries – with the United Kingdom’s vote to leave the European Union and President-elect Donald Trump’s victory in the US presidential election – but across the globe there is evidence of a growing backlash against elements of the domestic and international status quo.

The Global Risks Landscape

One of the key inputs to the analysis of The Global Risks Report is the Global Risks Perception Survey (GRPS), which brings together diverse perspectives from various age groups, countries and sectors: business, academia, civil society and government. This year’s findings are testament to five key challenges that the world now faces. The first two are in the economic category, in line with the fact that rising income and wealth disparity is rated by GRPS respondents as the most important trend in determining global developments over the next 10 years. This points to the need for reviving economic growth, but the growing mood of anti-establishment populism suggests we may have passed the stage where this alone would remedy fractures in society: reforming market capitalism must also be added to the agenda.

With the electoral surprises of 2016 and the rise of once-fringe parties stressing national sovereignty and traditional values across Europe and beyond, the societal trends of increasing polarization and intensifying national sentiment are ranked among the top five. Hence the next challenge: facing up to the importance of identity and community. Rapid changes of attitudes in areas such as gender, sexual orientation, race, multiculturalism, environmental protection and international cooperation have led many voters – particularly the older and less-educated ones – to feel left behind in their own countries. The resulting cultural schisms are testing social and political cohesion and may amplify many other risks if not resolved.

Although anti-establishment politics tends to blame globalization for deteriorating domestic job prospects, evidence suggests that managing technological change is a more important challenge for labour markets. While innovation has historically created new kinds of jobs as well as destroying old kinds, this process may be slowing. It is no coincidence that challenges to social cohesion and policy-makers’ legitimacy are coinciding with a highly disruptive phase of technological change.

The fifth key challenge is to protect and strengthen our systems of global cooperation. Examples are mounting of states seeking to withdraw from various international cooperation mechanisms. A lasting shift in the global system from an outward-looking to a more inward-looking stance would be a highly disruptive development. In numerous areas – not least the ongoing crisis in Syria and the migration flows it has created – it is ever clearer how important global cooperation is on the interconnections that shape the risk landscape.

Further challenges requiring global cooperation are found in the environmental category, which this year stands out in the GRPS. Over the course of the past decade, a cluster of environment-related risks – notably extreme weather events and failure of climate change mitigation and adaptation as well as water crises – has emerged as a consistently central feature of the GRPS risk landscape, strongly interconnected with many other risks, such as conflict and migration. This year, environmental concerns are more prominent than ever, with all five risks in this category assessed as being above average for both impact and likelihood

Social and Political Challenges

After the electoral shocks of the last year, many are asking whether the crisis of mainstream political parties in Western democracies also represents a deeper crisis with democracy itself. The first of three “risks in focus” considered in Part 2 of the Report assesses three related reasons to think so: the impacts of rapid economic and technological change; the deepening of social and cultural polarization; and the emergence of “post-truth” political debate. These challenges to the political process bring into focus policy questions such as how to make economic growth more inclusive and how to reconcile growing identity nationalism with diverse societies.

The second risk in focus also relates to the functioning of society and politics: it looks at how civil society organizations and individual activists are increasingly experiencing government crackdowns on civic space, ranging from restrictions on foreign funding to surveillance of digital activities and even physical violence. Although the stated aim of such measures is typically to protect against security threats, the effects have been felt by academic, philanthropic and humanitarian entities and have the potential to erode social, political and economic stability.

An issue underlying the rise of disaffection with the political and economic status quo is that social protection systems are at breaking point. The third risk in focus analyses how the underfunding of state systems is coinciding with the decline of employer-backed social protection schemes; this is happening while technological change means stable, long-term jobs are giving way to self-employment in the “gig economy”.

Managing the Fourth Industrial Revolution

The final part of this Report explores the relationship between global risks and the emerging technologies of the Fourth Industrial Revolution (4IR). We face a pressing governance challenge if we are to construct the rules, norms, standards, incentives, institutions and other mechanisms that are needed to shape the development and deployment of these technologies. How to govern fast-developing technologies is a complex question: regulating too heavily too quickly can hold back progress, but a lack of governance can exacerbate risks as well as creating unhelpful uncertainty for potential investors and innovators.

Currently, the governance of emerging technologies is patchy: some are regulated heavily, others hardly at all because they do not fit under the remit of any existing regulatory body. Respondents to the GRPS saw two emerging technologies as being most in need of better governance: biotechnologies – which tend to be highly regulated, but in a slow-moving way – and artificial intelligence (AI) and robotics, a space that remains only lightly governed. A chapter focusing on the risks associated with AI considers the potential risks associated with letting greater decision-making powers move from humans to AI programmes, as well as the debate about whether and how to prepare for the possible development of machines with greater general intelligence than humans.

The Report concludes by assessing the risks associated with how technology is reshaping physical infrastructure: greater interdependence among different infrastructure networks is increasing the scope for systemic failures – whether from cyberattacks, software glitches, natural disasters or other causes – to cascade across networks and affect society in unanticipated ways.