In its 16th annual Global Risks Report, the World Economic Forum (WEF) has stressed the inequalities and challenges that countries and their exporters face in their recovery from the pandemic, as well as the continued threat to business of climate change and geopolitical tensions.

According to the research, in the short term, infectious diseases and livelihood crises are the biggest risks in the world, followed by extreme weather events, cybersecurity failure and digital inequality.

For business, the economic, technological and reputational pressures of Covid-19 are driving a disorderly “shakeout”, threatening to create a large cohort of workers and companies that are left behind in the markets of the future, says the report.

Businesses most at risk are minority and/or women-owned firms and SMEs. Regardless of geography and market type, women-led businesses have been more adversely affected by the pandemic than those led by their male counterparts.

For countries that are emerging from the current crisis, the research states that governments are experiencing tensions as they continue providing fiscal support for struggling businesses, while at the same time managing financial stability and pressure on reserves and currency to ensure a sustainable economic recovery.

Trade is essential for economic growth; countries that are open to global trade tend to grow faster and provide higher income and more opportunities to their people. However, Covid-19 lockdown measures have caused a slump in international trade volumes, with the United Nations Conference on Trade and Development (UNCTD) projecting that global trade fell by 7-9% last year.

Saadia Zahidi, managing director at WEF, told GTR during a press briefing that opening up opportunities in trade is essential for all economies’ post-pandemic recovery.

“We know that trade and open borders are better for all economies, we know that they are important for building in more resilience, we know that they are important for lifting people out of poverty. And there is no choice but to move towards a return to more openness and trade.

“This is particularly important for developing economies. We know that we’re looking at an outlook where poverty levels are rising and where there will be long-term damage to a number of developing markets. And so, the return to trade is critical,” she says.


Geopolitical tensions

Leaders’ responses to the pandemic have given rise to new domestic and geopolitical tensions that threaten stability, states the report.

Over the course of 2020, trade was a target of protectionist measures and weakening diplomatic relations. The trade of personal protective equipment (PPE) and other hygiene goods was subject to controls by authorities around the world, for example.

Markets also imposed levies on goods as a way to carry out political agendas. The US and China’s relationship fell off a cliff, with Covid-19 and trade at the heart of the dispute. Meanwhile, officials in Australia and China sparred over trade after Canberra called for an inquiry into the origins of the coronavirus.

“There will be no full recovery without resuming back to a situation where we also see growth in trade. And we have to do everything that is possible to get trade negotiations back on track,” Børge Brende, president of WEF, said during the briefing.

The report references the importance of ‘middle powers’, countries that lack so-called ‘superpower’ status but still play influential roles in international relations, as having the potential to act as the deciding vote on a variety of issues.

“Middle powers are often the champions of multilateral co-operation in areas of trade, diplomacy, security and, most recently, global health,” reads the report.

These countries are positioned to offer alternative pathways for the world on trade, it says. But growing capability gaps may force a choice between rival blocs rather than allowing the middle powers to develop a diverse network of mutually beneficial deals.

“For example, either the European Union (EU) (which accounts for nearly a third of global merchandise trade) or India (which is projected to become the world’s most populated country in 2027) could provide a counterbalance in the evolving geopolitical order in areas such as manufacturing and trade, but they will struggle to stand apart in digital and defence realms.”


Climate change

A warming planet will create new problems, such as shipping lanes in the Arctic, which could stoke resource competition, states the report. These concerns will continue to create a difficult global trade and business environment, adding to the risk of “anaemic global economic growth”.

This year there are four environmental risks within the top five risks by likelihood, according to respondents to the global risks survey.

As has been the case with Covid-19, climate change impacts are likely to play out disproportionately across countries and are exacerbated by existing inequalities. There is only a short window to remedy these disparities, says the report.

“A shift towards greener production and consumption cannot be delayed until economies are revived. Governments – individually and in co-ordination – need to catalyse a transformation that amalgamates investment in green and inclusive economic recovery.”

Some governments are acting and encouraging cleaner trade. For example, Sweden’s export credit agency EKN has supported the export of gas turbines from Sweden that can run on a fuel mix of up to 60% hydrogen and 40% natural gas, making them much more environmentally friendly than traditional gas turbines.

However, many of the turbines are exported to developing countries, which are unable to power them using greener alternatives to natural gas because of cost issues and availability, reflecting the current gaps in sustainable trade and production.

Elsewhere, governments and banks are being urged to introduce stricter due diligence standards to their financing processes, following deforestation scandals in both Southeast Asia and Brazil.