Governments and central banks could face stubborn in昀氀ationary pressures over the next two years, not least given the potential for a prolonged war in Ukraine, continued bottlenecks from a lingering pandemic, and economic warfare spurring supply chain decoupling. Downside risks to the economic outlook also loom large. A miscalibration between monetary and 昀椀scal policies will raise the likelihood of liquidity shocks, signaling a more prolonged economic downturn and debt distress on a global scale. Continued supply-driven in昀氀ation could lead to stag昀氀ation, the socioeconomic consequences of which could be severe, given an unprecedented interaction with historically high levels of public debt. Global economic fragmentation, geopolitical tensions and rockier restructuring could contribute to widespread debt distress in the next 10 years. Even if some economies experience a softer-than- crises. Chapter 3 imagines mid-term futures, expected economic landing, the end of the low exploring how connections between the emerging interest rate era will have signi昀椀cant rami昀椀cations risks outlined in previous sections may collectively for governments, businesses and individuals. The evolve into a “polycrisis” centred around natural knock-on effects will be felt most acutely by the resource shortages by 2030. The report concludes most vulnerable parts of society and already-fragile by considering perceptions of the comparative state states, contributing to rising poverty, hunger, violent of preparedness for these risks and highlighting protests, political instability and even state collapse. enablers to charting a course to a more resilient Economic pressures will also erode gains made by world. Below are key 昀椀ndings of the report. middle-income households, spurring discontent, political polarization and calls for enhanced social protections in countries across the world. Cost of living dominates global Governments will continue to face a dangerous risks in the next two years while balancing act between protecting a broad swathe of climate action failure dominates their citizens from an elongated cost-of-living crisis without embedding in昀氀ation – and meeting debt the next decade servicing costs as revenues come under pressure from an economic downturn, an increasingly urgent transition to new energy systems, and a less The next decade will be characterized by stable geopolitical environment. The resulting new environmental and societal crises, driven by economic era may be one of growing divergence underlying geopolitical and economic trends. “Cost- between rich and poor countries and the 昀椀rst of-living crisis” is ranked as the most severe global rollback in human development in decades. risk over the next two years, peaking in the short term. “Biodiversity loss and ecosystem collapse” is viewed as one of the fastest deteriorating global Geopolitical fragmentation will drive risks over the next decade, and all six environmental geoeconomic warfare and heighten risks feature in the top 10 risks over the next 10 the risk of multi-domain con昀氀icts years. Nine risks are featured in the top 10 rankings over both the short and the long term, including “Geoeconomic confrontation” and “Erosion Economic warfare is becoming the norm, with of social cohesion and societal polarisation”, increasing clashes between global powers and state alongside two new entrants to the top rankings: intervention in markets over the next two years. “Widespread cybercrime and cyber insecurity” Economic policies will be used defensively, to build and “Large-scale involuntary migration”. self-suf昀椀ciency and sovereignty from rival powers, but also will increasingly be deployed offensively to constrain the rise of others. Intensive geoeconomic As an economic era ends, the weaponization will highlight security vulnerabilities next will bring more risks of posed by trade, 昀椀nancial and technological stagnation, divergence and interdependence between globally integrated economies, risking an escalating cycle of distrust distress and decoupling. As geopolitics trumps economics, a longer-term rise in inef昀椀cient production and rising prices becomes more likely. Geographic hotspots The economic aftereffects of COVID-19 and the war that are critical to the effective functioning of the in Ukraine have ushered in skyrocketing in昀氀ation, a global 昀椀nancial and economic system, in particular in rapid normalization of monetary policies and started the Asia-Paci昀椀c, also pose a growing concern. a low-growth, low-investment era. Global Risks Report 2023 7