KUALA LUMPUR (Jan 16): Cost-of-living, rapid or sustained inflation, and debt crises were identified as the top three global risks for Malaysia in the Executive Opinion Survey (EOS) accompanying the Global Risks Report 2023 by the World Economic Forum (WEF).
According to the report, cost of living is the top risk globally, with the greatest impact (severity) over a two-year period. Meanwhile, the global risk that ranked first by severity over the long term (10 years) is failure to mitigate climate change.
Global risk is defined as the possibility of the occurrence of an event or condition which, if it occurs, would negatively impact a significant proportion of global gross domestic product, populations or natural resources.
“As 2023 begins, the world is facing a set of risks that feel both wholly new and eerily familiar. We have seen a return of “older” risks — inflation, cost-of-living crises, trade wars, capital outflows from emerging markets, widespread social unrest, geopolitical confrontation, and the spectre of nuclear warfare — which few of this generation’s business leaders and public policymakers have experienced,” read the report.
According to the report, these are being amplified by comparatively new developments in the global risks landscape, including unsustainable levels of debt, a new era of low growth, low global investment and de-globalisation, a decline in human development after decades of progress, rapid and unconstrained development of dual-use (civilian and military) technologies, and growing pressure of climate change impacts and ambitions in an ever-shrinking window for a transition to a 1.5°C hotter world.
The EOS report complements the WEF’s Global Risks Perception Survey (GRPS), which recorded responses from over 1,200 experts across academia, business, government, the international community, and civil society between Sept 7 and Oct 5, 2022.
The EOS identifies risks that pose the most severe threat to each country over the next two years, as identified by over 12,000 business leaders in 121 economies. When considered in context with the GRPS, this data provides insights into local concerns and priorities, and points to potential “hotspots” and regional manifestations of global risks.
The report said governments will continue to face a dangerous balancing act between protecting a broad swathe of their citizens from an elongated cost-of-living crisis without embedding inflation and meeting debt servicing cost, as revenues come under pressure from an economic downturn, an increasingly urgent transition to new energy systems, and a less stable geopolitical environment.
“The resulting new economic era may be one of growing divergence between rich and poor countries, and the first rollback in human development in decades,” it added.
Cost of living ranked most severe global risk
Even before the Covid-19 pandemic, prices of basic necessities — non-expendable items such as food and housing — were on the rise.
Costs further increased in 2022, primarily due to continued disruptions to the flows of energy and food from Russia and Ukraine.
To curb domestic prices, around 30 countries introduced restrictions, including export bans, on food and energy last year, further driving up global inflation.
The FAO Price Index hit the highest level since its inception in 1990 in March last year. Energy prices are estimated to remain 46% higher than average in 2023 relative to January 2022 projections.
The relaxation of China's Covid-19 policies could drive up energy and commodity prices further, and will test the resilience of global supply chains if policy changes remain unpredictable as infections soar.
Continued supply-chain disruptions could lead to sticky core inflation, particularly in food and energy.
This could fuel further interest rate hikes, raising the risk of debt distress, a prolonged economic downturn, and a vicious cycle for fiscal planning. Despite some improvement during the pandemic, household debt has been on the rise in certain countries.
Source: https://www.theedgemarkets.com/node/651856