Declining optimism, deepening geopolitical tensions and tariff-led economic impacts are shrouding the world as we enter 2025 but one bright spark is a fall in inflation, according to the World Economic Forum’s Global Risks report released ahead of the Davos conference.
State-based armed conflict (23%), extreme weather events (14%) and geoeconomic confrontation (11%) head the list of concerns in the current risk landscape, followed by misinformation and disinformation (7%) and societal polarisation (6%).
Interestingly disruptions to a ‘systemically important supply chain’ barely registered (1%), suggesting challenges during the COVID years have been consigned to memory, although the report still highlights the need to diversify supply chains amid ongoing conflicts.
“With geopolitical volatility likely to remain high over the next two years, organisational investment in geopolitical risk foresight and risk management is a must,” it states.
“Organisations need to consider not only where their suppliers and supply routes are vulnerable to conflicts, but also what the reputational risks are of partnering or doing business with counterparts that are in any way party to a conflict.”
Source: World Economic Forum Global Risks report
Technological risks ‘are still under the radar’, another surprise given concerns about the adverse outcomes of AI technologies, although it is one of the risks that rises most in the 10-year rankings (31st to 6th).
Inflation is perceived as less of a concern this year than in 2024, even if perceptions of the overall economic outlook remain fairly pessimistic across all age groups surveyed, and understandably most concerning to under 30s and 30-39s.
In a worst-case scenario for tariff escalation, governments would decide to impose tariffs not only on those countries and blocs imposing tariffs on them, but on all their trading partners.
South Korea was found to be most at risk for being targeted with restrictive trade measures, followed by China, Japan, Canada and India. As the Republicans return to the White House, the spectrum of possible outcomes for Russia and Ukraine ‘is wide’, the report notes, ranging from ‘further escalation to uneasy agreement’.
Any escalation in the Middle East would have serious implications for the US and Gulf economies, where military bases could become targets, while political developments in Syria present opportunities and risks. The stakes are equally high for Taiwan and China where ‘one manoeuvre could be misinterpreted’.
Source: World Economic Forum Global Risks report
Worsening humanitarian crises and weakening of multilateralism present additional challenges – more than 90 million people receive humanitarian aid or development assistance from UN institutions on an annual basis – but the rise in need has been accompanied by a fall in funding over the last two years.
Bronwen Maddox, Director and CEO at Chatham House, delivering the Director’s Annual Lecture, said, “The world is witnessing more wars and a fraying of international law and institutions of economic stability, and that jeopardises the prosperity that has flowed through so much of the world since the second world war. So the pursuit of agreement on some kind of future order is essential.”
