Top 10 risks to a deceptively healthy global economy

Top 10 risks to a deceptively healthy global economy | Corporate Risk & Insurance

Top 10 risks to a deceptively healthy global economy

The global economy is the strongest it’s been in years and is only expected to grow in the months ahead. However, risk managers should be forewarned the perils of complacency. Underneath the surface lay geopolitical, financial, and operational risks with unprecedented destabilising potentials.

Here are the top 10 risks to the global economy, ranked from one through ten based on likelihood and impact, according to a new report by The Economist Intelligence Unit (EIU):

1. Fall in major stock markets

Early February saw a spike in stock market volatility. There is concern that substantial uncertainty will arise as more central banks begin to go back on their loose monetary policy positions amid rapid growth rates.

2. Slowing global trade

As it stands today, global trade is expected to continue growing in the year ahead, but an unpredictable US President Donald Trump poses a risk to that projection should he put his protectionist words into action. Repercussions of a US withdrawal from NAFTA would have implications worldwide.

3. Territorial disputes in the South China Sea lead to widespread clashes

China is keen to demonstrate its growing assertiveness as US global hegemony weakens. The South China Sea, to which the country lays claim, has been a major point of contention for years. Militaristic aggression on the part of China could fuel an outbreak of international conflict in the region, which has become a political hotbed.

4. Global growth skyrockets to over 4%

One of these risks is not like the others! I.e., this risk has an upside to it. The EIU says it has a decent chance of happening, too. Growth in some of the bigger markets like India, Brazil, China, and emerging markets could spur acceleration more broadly and cause a rise in global demand. That’s good news for everybody, especially slow-growing countries and the big commodity exporters of Latin America, the Middle East, and Sub-Saharan Africa.

5. Cyber attack devastates corporations and governments

Last year’s WannaCry and Petya attacks prove that severe cyber events have the potential to shut down corporate and government networks. Rival governments could engage in crippling cyberwarfare, with North Korean efforts serving as a recent example. Major attacks could rattle consumer faith in cyber security and net billions of dollars in losses.

6. China’s economy takes a turn

It’s unlikely, but if it happens, the impact will be huge. If the Chinese government can’t sustain economic growth, global commodity prices would plummet, affecting Latin America, the Middle East, and Sub-Saharan Africa in particular. Western retailing and manufacturing companies reliant on Chinese demand would mean global consequences.

7. US and North Korea collide

Again, it probably won’t happen. But if it does, it would spell disaster. Tensions have been running high between the countries since the 1950s, but today’s situation appears more precarious than ever before. North Korea is progressing its long-range missile program, a risk exacerbated by Trump’s hard-line rhetoric and unpredictability.

8. Middle Eastern proxy wars get serious

The beef between Saudi Arabia and Iran is old news, but things have been getting more heated lately. As neighbouring countries like Egypt, UAE, and Qatar choose sides, the risk of outright conflict becomes more plausible. That would stifle global energy markets and have vast repercussions to global economic growth.  

9. Oil prices plummet

OPEC and Russia reached a deal to reduce production through 2018, but if OPEC producers decide the deal isn’t working for them, especially as market shares have increasing gone to non-OPEC producers like the US, then the agreement could break down. Oil prices that have just begun to recover would plunge.

10. Exodus from the Eurozone

A departure from the Eurozone by Greece would not be unexpected, nor would it be too destabilising. However, if other countries – like Italy, who has been grappling with political and economic malaise – follow suit, the global economy could fall into recession as leavers suffer currency devaluations and banks lose big on their sovereign bond portfolios.


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