Fractious world: navigating global risks in 2024

April 2024  |  COVER STORY | RISK MANAGEMENT

Financier Worldwide Magazine

April 2024 Issue

It is hard to remember a more unstable, dangerous and uncertain world than the one we inhabit today. Newly emerging and rapidly accelerating risks abound, prompting headlines to scream of impending doom and commentators to theorise whether optimism is on the path to obscurity.

Geopolitical tensions, the aftermath of the coronavirus (COVID-19) pandemic, the ongoing Russia-Ukraine war and associated crises, as well as the Gaza and Israel conflict are undoubtedly the most visible risk scenarios currently permeating the world. But others, such as financial stress, persistent inflation, trade fragmentation and climate-related disasters, have also served to turn up the risk dial.

“The global risks landscape is increasingly volatile,” says Edward Harrison, a principal at Lane Clark & Peacock LLP. “In the short term, the main driver is geopolitical tension. Longer term challenges such as climate change remain important but often get pushed down the agenda. This is because the consequences of how we address those risks will play out more in the far future and less in the near term.”

Also, a factor contributing to a prevailing sense of unease worldwide is imminent voting in countries representing 60 percent of the world’s GDP. “The global response to this situation involves embracing agility and taking a proactive stance in risk mitigation, particularly while navigating through turmoil and uncertainty” observes Raymond Steele, a watch operations manager at Crisis24.

The day to day societal impact of the global risk landscape should also not be underestimated, creating as it does a sense of uncertainty and anxiety, affecting individuals’ outlook on the future and their decision-making processes.

“There is no question that the succession of major shock events we have seen has had a big impact on society,” affirms Mr Harrison. “The pandemic led to health and wellbeing challenges across all ages, but particularly for the oldest and youngest in society. The subsequent cost of living crisis has caused financial hardship for many families, and now rising interest rates are putting pressure on homeowners and borrowers.”

Visible risks or otherwise, the overall global risks landscape in the first months of 2024 is a swirling vortex, a world of escalating challenges that for many puts us on the brink of catastrophe with the very real risk of global conflict waiting in the wings.

WEF outlook

In its ‘Global Risks Report 2024’ analysis, the World Economic Forum (WEF) paints a predominantly negative picture of the current risk landscape – an outlook it expects to worsen over the short and long term. The analysis also forecasts the severity and likely trajectory of the global risks the world faces.

According to the report – which features the results of the WEF’s ‘Global Risks Perception Survey 2023-2024’ – 54 percent of respondents surveyed anticipate some instability and a moderate risk of global catastrophes, while another 27 percent expect greater turbulence and 3 percent expect global catastrophic risks to materialise in the short term.

Just 16 percent of respondents stated an expectation of a stable or calm outlook in the next two years. In terms of a 10-year time frame, the outlook is markedly more negative, with 63 percent of respondents expecting a stormy or turbulent outlook and less than 10 percent expecting a calm or stable situation.

Returning to 2024, the WEF report highlights five key risks, as outlined below, that survey respondents believe should be the areas of focus in the months to come.

First, extreme weather. Two-thirds (66 percent) of WEF survey respondents selected extreme weather as the top risk facing the world in 2024. El Niño, or the warming phase of the alternating El Niño-Southern Oscillation cycle, is expected to strengthen and persist until May 2024. This could continue to set new records in heat conditions, with extreme heatwaves, drought, wildfires and flooding anticipated.

“The El Niño pattern will be impacting regions around the world, making extreme weather events more likely,” adds Emmett Potts, a watch operations manager at Crisis24. “Global climate change, over the long term, could exacerbate regional conflicts, including those related to fresh water in the Middle East and North Africa region.”

Second, artificial intelligence (AI)-generated misinformation and disinformation. This was cited as a key concern by 53 percent of respondents. With many countries still struggling to regain lost years of progress that arose from the COVID-19 pandemic, this has created fertile ground for misinformation and disinformation to take hold and polarise communities, societies and countries.

“Cyber threats enhanced by AI, data privacy concerns due to generative AI and geopolitical tensions are being exacerbated by major global elections,” opines Gary Lynam, managing director EMEA at the Protecht Group. “These risks are not only immediate but also have far-reaching implications for long-term business sustainability.”

Third, societal and political polarisation. This is a consistent concern across nearly all stakeholder groups according to 46 percent of survey respondents. Divisive factors such as political polarisation and economic hardship are diminishing trust and a sense of shared values. The erosion of social cohesion is leaving ample room for new and evolving risks to propagate in turn.

“There is an abundance of misinformation circulating in the current media landscape, notably in social media,” observes Mr Potts. “This is especially significant in 2024 – a major global election year when countries accounting for 60 percent of the world’s GDP are heading to the polls.

In addition to misinformation in social media, another challenge facing the media environment, particularly in some Western countries, is the existence of multiple media universes that share few common sets of accepted facts.

“These media silos often employ editorial lenses that refract coverage of current events in such ways that their resulting narratives are almost mutually unintelligible,” contends Mr Potts. “The cumulative impact is an erosion of baseline truth among publics in democratic states.

“And while democracies are fragmenting both in a domestic sense and in terms of cooperation with each other within international institutions – with the recent expansion of NATO being a notable counterexample – we are seeing increasing cooperation on the global geopolitical stage between authoritarian states, such as Russia, China and Iran,” he continues. “These factors are testing the durability of the rules-based world order and transforming the US-led unipolarity seen since the end of the Cold War into a more multipolar landscape.”

Fourth, cost of living crisis. This is a major concern for 42 percent in the WEF outlook and a top-three concern for government and private sector respondents, respectively. Younger age groups ranked this risk higher: it was selected by 55 percent of survey respondents aged 39 or below, compared to just 28 percent of those aged 60 or over.

“There is no question that the succession of major shock events we have seen has had a big impact on society,” says Mr Harrison. “The pandemic led to health and wellbeing challenges across all ages, but particularly for the oldest and youngest in society. The subsequent cost of living crisis has caused financial hardship for many families, and now rising interest rates are putting pressure on homeowners and borrowers.”

Lastly, cyber attacks. For 39 percent of survey respondents, the rapid integration of advanced technologies is exposing a broader subset of the global population to potential digital and physical exploitation. Additionally, organised crime networks will increasingly adopt blended business models utilising new technologies to diversify illicit funding and fragment the physical presence of organised crime.

“These global risks are deeply interconnected, influencing companies’ business expectations, models and decision-making processes,” adds Mr Lynam. “For instance, AI’s role in products and services is tied to ethical and governance challenges, impacting how companies innovate and compete.

“Similarly, geopolitical risks affect market stability and investment decisions,” he continues. “Understanding these interconnections is vital for companies to anticipate potential impacts and adapt their strategies accordingly, ensuring resilience and agility in a rapidly changing environment.”

Declining global GDP

A significant contributor to the uncertain global risks outlook is the deteriorating expectations for the global economy, with GDP forecast to slow from an estimated 2.7 percent in 2023 to 2.4 percent in 2024, according to the United Nations’ (UNs’) ‘World Economic Situation and Prospects 2024’ report.

Furthermore, while the world economy avoided the worst-case scenario of a recession in 2023, the UN forecasts that a protracted period of low growth looms large, with growth prospects for many developing countries, especially vulnerable and low-income countries, remaining weak.

In the US, growth of the economy – the largest in the world – is expected to decelerate from an estimated 2.5 percent in 2023 to 1.4 percent in 2024. While the likelihood of a hard landing has declined considerably, the US economy will face significant downside risks from deteriorating labour, housing and financial markets.

Europe faces a challenging economic outlook amid still elevated inflation and high interest rates.

In the European Union, while GDP is projected to expand by 1.2 percent in 2024, up from 0.5 percent in 2023, the continued and lagged effects of tight financial conditions and the withdrawal of fiscal support measures will partly offset the positive effects of these key drivers of growth in 2024.

In Japan, growth is projected to slow from 1.7 percent in 2023 to 1.2 percent in 2024 despite accommodative monetary and fiscal policy stances. Rising inflation may signal an exit from the deflationary trend that persisted for more than two decades. Slowing growth in China and the US – the country’s main trading partners – is expected to curb net exports in 2024.

Economic growth in Africa is projected to remain weak, increasing from an average of 3.3 percent in 2023 to 3.5 percent in 2024. The global economic slowdown, tighter monetary and fiscal conditions, and high debt sustainability risks will remain a drag on the region’s growth prospects.

Responding to risks

In a fast-fragmenting world, determining the best strategic response to high-impact risks is a key consideration for organisational leaders. However, many organisations do not have access to integrated risk management solutions, and this can significantly restrict their effectiveness in global risk mitigation.

“This disparity determines whether they are proactive or reactive in navigating the continuously changing geopolitical landscape,” contends Mr Steele. “Organisations should now, more than ever, team up with partners and use tools that can help them spot operational risks ahead of time and deal with them effectively.”

Moreover, with economic confrontations and frictions likely to escalate in 2024, the challenge facing organisations’ boards and management to become more proactive and strategic in their response to global risks and to adapt their extant risk management strategies accordingly is considerable.

“This situation demands a more integrated approach to risk management, where ethical governance, particularly in AI usage, and resilience in the face of geopolitical changes become central to corporate strategy,” points out Mr Lynam. “These efforts are crucial in mitigating the impact of global risks on business operations.”

“Companies and leaders play a crucial role in mitigating this impact by communicating effectively, maintaining transparency and demonstrating a commitment to proactive risk management,” he continues. “To navigate the turmoil, it is essential to foster a culture of resilience, where adaptive strategies and continuous learning are prioritised. Encouraging open dialogue about risks and uncertainties can also help in building resilience.”

Forthwith or ‘wait and see’

As current crises that corrode resilience, as well as new and rapidly evolving sources of risk that will reshape the next decade take their toll, how world leaders in business, government and civil society respond is crucial. Some favour a resilient, proactive approach toward tackling present and potential threats. Others contend that a ‘wait and see’ attitude is the best option.

For Mr Harrison, a ‘wait and see’ approach, while a credible strategy, is also high risk. “It could pay off, but equally it could spell disaster,” he suggests. “On the one hand, leaders that invest in better resilience may ultimately discover that their investment adds little value if we are able to navigate back to a more stable global environment.

“On the other hand, any delay in investing in resilience measures could see them being caught off-guard if the global environment continues to become more volatile,” he continues. “They will then need to play catch-up and risk disappointing customers, as well as suffering reputational damage in the interim.”

Others believe a better strategy is a more collaborative and integrated approach. “This involves anticipating potential risks, preparing contingency plans, and being ready to adapt quickly,” explains Mr Lynam. “A global response will likely focus on leveraging technology for better risk prediction and management, enhancing cross-border cooperation to tackle shared challenges, and fostering a culture of continuous learning and adaptation to manage risks effectively.”

Ultimately, the evolution of global risks reflects conditions taking shape across multiple spheres: geostrategic, environmental, demographic and technological – a landscape within which economic, geopolitical and societal vulnerabilities continue to build and risk becoming chronic global risks for future generations.

© Financier Worldwide

BY

Fraser Tennant