Cost of living crisis tops WEF Global Risks 2023

Conflict and geo-economic tensions have triggered a series of deeply interconnected global risks, according to the World Economic Forum’s Global Risks Report 2023.

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.

At the same time, these crises risk undermining efforts to tackle longer-term risks, notably those related to climate change, biodiversity and investment in human capital.

The report argues that the window for action on the most serious long-term threats is closing rapidly and concerted, collective action is needed before risks reach a tipping point.

Carolina Klint, risk management leader, Continental Europe, Marsh, said: “2023 is set to be marked by increased risks related to food, energy, raw materials and cyber security, causing further disruption to global supply chains and impacting investment decisions.

”At a time when countries and organisations should be stepping up resilience efforts, economic headwinds will constrain their ability to do so.

”Faced with the most difficult geo-economic conditions in a generation, companies should focus not just on navigating near-term concerns but also on developing strategies that will position them well for longer-term risks and structural change.”

Risk trade-offs 

At present, the global pandemic and war in Europe have brought energy, inflation, food and security crises back to the fore.

These create follow-on risks that will dominate the next two years: the risk of recession; growing debt distress; a continued cost of living crisis; polarised societies enabled by disinformation and misinformation; a hiatus on rapid climate action; and zero-sum geo-economic warfare.
 
The coming years will present tough trade-offs for governments facing competing concerns for society, the environment and security.

Already, short-term geo-economic risks are putting net-zero commitments to the test and have exposed a gap between what is scientifically necessary and politically palatable.

Dramatically accelerated collective action on the climate crisis is needed to limit the consequences of a warming world. Meanwhile, security considerations and increasing military expenditure may leave less fiscal headroom to cushion the impacts of an elongated cost of living crisis.

Without a change in trajectory, vulnerable countries could reach a perpetual state of crisis where they are unable to invest in future growth, human development and green technologies. 

Call to action

The report calls on leaders to act collectively and decisively, balancing short- and long-term views.

In addition to urgent and coordinated climate action, the report recommends joint efforts between countries as well as public-private cooperation to strengthen financial stability, technology governance, economic development and investment in research, science, education and health.
 
“The short-term risk landscape is dominated by energy, food, debt and disasters,” said Saadia Zahidi, Managing Director, 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 alike.

“In this already toxic mix of known and rising global risks, a new shock event, from a new military conflict to a new virus, could become unmanageable. Climate and human development therefore must be at the core of concerns of global leaders to boost resilience against future shocks.”
 
John Scott, head of Sustainability Risk, Zurich Insurance Group, said: “The interplay between climate change impacts, biodiversity loss, food security and natural resource consumption is a dangerous cocktail.

”Without significant policy change or investments, this mix will accelerate ecosystem collapse, threaten food supplies, amplify the impacts of natural disasters and limit further climate mitigation progress.

”If we speed up action, there is still an opportunity by the end of the decade to achieve a 1.5ᵒC degree trajectory and address the nature emergency. Recent progress in the deployment of renewable energy technologies and electric vehicles gives us good reasons to be optimistic.”