2015 is likely to see the rise of strategic competition between countries, including in the form of economic and trade sanctions, according to the World Economic Forum.
The forum’s Global Risks 2015 report, released today, highlights geopolitical conflicts not only as the most likely, but also one of the most interconnected risks for the year to come. This means that their impact would resonate across a multitude of areas, including trade and investment.
“Geopolitical risk is now the number one perceived risk in terms of likelihood and number four in terms of impact. Many economies are now in conflict with each other, including the most characteristic one in Ukraine, which is really a major power game between Russia and Europe and the US. In East Asia, there are also deep tensions between the second and third largest economies in the world: China and Japan.
“This is closely related to the economy. At first glance you could get the impression that economic risks are down and societal and geopolitical risks are up, but that’s wrong. We are seeing the use of sanctions and economic tools as part of strategic competition, maybe political warnings against investors in certain countries, and maybe trade wars,” says Espen Barth Eide, head of the Centre for Global Strategies and member of the managing board at WEF.
At first glance you could get the impression that economic risks are down and societal and geopolitical risks are up, but that’s wrong.
He also mentions increasing distrust between different governments, but also between governments and those governed, leading to demands to retract from regional and global integration. This is already an issue in the EU, but could also impede efforts to build the Asean economic community.
As a result, the world could go from a globalising to a regionalising economy, with adverse effects on continued global growth and a weakening of global governance institutions.
Water crises are also mentioned as a significant risk in the report, which could lead to more tensions and conflicts between countries, as well as shifts in co-operation. Because of this, water will present important opportunities for investment this year, and WEF explains that, in this as in all sectors, public-private partnerships are key.
Another important risk is around technology, as innovation is largely outpacing governments’ ability to regulate.
“What gets underappreciated in technology innovation is the rate at which these technologies are creating vulnerabilities. Take cyber as a now very visible example: there has been incredible innovation over the last decade, but the risk is very substantial. Cyber-attacks cost society around US$400bn a year – that’s the GDP of Austria lost every year,” says John Drzik president of global risk and specialties at Marsh & McLennan Companies.
He identifies “the next cyber” as either synthetic biology, nanotechnology or artificial intelligence, and recommends a more energetic dialogue to govern these innovations.
The 10th WEF Global Risks report features an assessment by experts from public, private and academic organisations on the top global risks in terms of likelihood and potential impact over the coming 10 years. It can be downloaded on http://weforum.org/risks.