For the last decade, the World Economic Forum has produced an annual Global Risks Report that details all of the potential dangers faced by human society worldwide. This year’s eye-opening report analyzes every type of risk imaginable, from economic crises to climate change to failure of national governance to interstate attacks to water crises, and assesses the relationships between each risk as well as the likelihood of each occurring in 2015.
28 categories of global risks
The WEF report defines a global risk as “an uncertain event or condition that, if it occurs, can cause significant negative impact for several countries or industries within the next 10 years.”
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The 2015 Global Risks Report lays out 28 global risks in five categories — economic, environmental,societal, geopolitical and technological — and also discusses the drivers of those risks by introducing 13 new trends.
The report also highlights that “multiple cross-cutting challenges can threaten social stability, perceived to be the issue most interconnected with other risks in 2015, and additionally aggravated by the legacy of the global economic crisis in the form of strained public finances and persistent unemployment.”
Social instability is the central theme of this year’s report. The increase in social instability worldwide makes it clear the paradox that “global risks transcend borders and spheres of influence and require stakeholders to work together, yet these risks also threaten to undermine the trust and collaboration needed to adapt to the challenges of the new global context.”
Top 10 global risks in terms of likelihood and potential impact
According to the WEF report, the most probable global risk in 2015 is interstate conflict. The second most likely global risk is extreme weather events, followed by failure of national governance, state collapse or crisis, and unemployment or underemployment.
The WEF survey reports that the most impactful global risk if it were to occur would be water crises as severe droughts typically impact many millions of people. Number two on the top ten global risks in terms of impact list is spread of infectious diseases. Weapons of mass destruction is third on the greatest impact list, followed by interstate conflict and failure of climate change adaptation.
Of course readers will take the report with a grain of salt – the past predictions have been far from accurate, which would not surprise value investors. As Ben Hirschler of Reuters notes:
The mountain air encourages confident pronouncements but the accuracy of Davos predictions has been mixed in recent years.
Dud forecasts from last year include Bank of Japan chief Haruhiko Kuroda declaring the situation in his country was “completely changed”. Twelve months on, Japan’s economy is back in recession.
And no-one last year saw Russia’s annexation of Crimea, the rise of Islamic State or oil at $50 a barrel.
The twin crises in the euro zone and the banking sector have also been notorious for wrong-footing policymakers and pundits.