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Inflation the main short-term global risk, Davos report says

January 11, 2023

Short- and medium-term crises — most notably inflation, emerging from the COVID pandemic and Russia's invasion of Ukraine — risk undermining longer-term challenges such as climate change, the study warns.

https://p.dw.com/p/4M0nB
A person sifts through a money wallet filled with a large number of euro banknotes of different denominations. Undated stock photo.
The report warned that shorter-term crises might distract politicians from longer-term issuesImage: Micha Korb/picture alliance/dpa

Over the next two years, the cost-of-living crisis will pose the biggest global risk, a survey by the World Economic Forum warned ahead of its meeting in Davos next week.

Climate change remained the global economy's biggest long-term challenge, according to the Global Risks Report 2023 published by the World Economic Forum on Wednesday in the run-up to its business-focused summit in the Swiss Alps. However, given short-term problems such as the cost-of-living crisis, the world was becoming less prepared to tackle it. 

Global inflation  rose sharply in 2022 in particular driven mainly by rising energy and food costs , primarily attributable to Russia's invasion of Ukraine and supply constraints caused by the COVID-19 pandemic. 

Conflict and geo-economic tensions main reasons for crisis 

"Conflict and geo-economic tensions have triggered a series of deeply interconnected global risks," the study stated ahead of the World Economic Forum's annual meeting of global decision-makers in the Alpine village of Davos in Switzerland.

"These include energy and food supply crunches, which are likely to persist for the next two years, and strong increases in the cost-of-living and debt servicing."

After years of loose fiscal policy and amid record levels of sovereign debt in much of the world, rising interest rates designed to keep inflation in check will make it more expensive for countries, especially less wealthy ones, to service their debt.

The report said that such "crises risk undermining efforts to tackle longer-term risks, notably those related to climate change, biodiversity and investment in human capital."

The survey was produced with consultants Marsh McLennan and the Zurich Insurance Group. It took the views of more than 1,200 global risk experts, policymakers and industry leaders into consideration. 

Energy, food, debt and disasters dominate short-term risk landscape

The cost-of-living crisis was deemed the "biggest short-term risk" for the period until 2025 — and was followed by natural disasters, extreme weather events and "geo-economic confrontation," the report stated. 

"The short-term risk landscape is dominated by energy, food, debt and disasters," said Saadia Zahidi, a managing director at the World Economic Forum. "Those that are already the most vulnerable are suffering — and in the face of multiple crises, those who qualify as vulnerable are rapidly expanding, in rich and poor countries."

The World Economic Forum study asked "leaders to act collectively and decisively, balancing short- and long-term views."

Economic warfare on the rise, study finds 

Another issue that was highlighted was so-called deglobalization. This was probably most visible with the widespread international sanctions targeting Russia in 2022, but there are other comparable examples of trade tension, for instance with China, or even in the form of disputes between the EU and the US over domestic spending plans from President Joe Biden that European countries argue are protectionist in part.

"Economic warfare is becoming the norm," the report argued.

The study also sounded the alarm on signs of a slowdown in the elimination of global poverty and of some of the world's worst living standards, following a period of rapid improvement across almost all regions in recent decades. 

"The resulting new economic era may be one of growing divergence between rich and poor countries,'' the report warned, "and the first rollback in human development in decades.''

Greater cooperation necessary 

Carolina Klint, a risk management leader at Marsh, said this year will be marked by "increased risks" with regard to food, energy, raw materials and cyber security. "At a time when countries and organizations should be stepping up resilience efforts, economic headwinds will constrain their ability to do so," Klint said.

The study determined there was a need for cooperation to strengthen "financial stability, technology governance, economic development and investment in research, science, education and health."

los/msh (AP, AFP, Reuters)