Letters from Davos Day 1: Top risks for 2023 and 2024

Good morning from Davos, where even the world’s plutocrats can’t escape the clutches of Blue Monday. The World Economic Forum ’s annual meeting is back in full swing in this Swiss ski resort town for the first time in three years. But pandemic-style anxieties are everywhere. Given all the world has been through since 2020, you’d think the train ride into Davos might include a bit of celebration for the great reopening. Instead, this week’s gathering of?government, business and civil society leaders is all about war, recession, and trade.?Welcome to the great reordering.

According to the Forum’s annual risk report , a new political era may be washing over the go-go decades of global growth. The report surveyed 12,000 Forum members in 121 economies, and found more than 80% expect shock and volatility to be a norm the next two years—and half think disruption will shape the decade ahead. Roaring ‘20s, meet the Goring ‘20s.

The economy is foremost on the Davos mind, but not by much. Here are the top risks for 2023 and 2024:

1. Cost of living. Energy, housing and food costs are not expected to come down sharply in the next 24 months, if at all. Even flat prices will leave much of the world poorer, as incomes haven’t kept pace. And that will lead governments to allocate even more of their budgets to income supports, fueling inflation as central banks fight to bring it down.?
2. Extreme weather. A relatively mild winter in much of Europe and parts of North America is the latest reminder of volatile weather, and the whipsaw effect it has on heating prices and more. But the impact of severe weather continues to be felt most by those who can least afford to, umm, weather it. This risk ranked highest in Latin America, Africa and South-east Asia.
3. Geo-economic conflict. The Ukraine war is relatively contained; the related economic skirmishes are not.?Economic sanctions are now the preferred WMD, or Weapon of Monetary Destruction. Investment screening, from Canada’s rejection of Chinese mining firms to Switzerland’s proposed tightening of foreign capital, suggests a new kind of economic nationalism is here. Unprecedented subsidies, in the name of industrial policy, will add to that. One inevitable cost: less competition and higher prices, and therefore greater tensions over affordability.
4. Climate policy failure. Despite the pledges of various United Nations climate conferences, global emissions continue to rise. Government and business leaders alike know they will be blamed, even when they see each other at fault. The greatest near-term risk: more regulatory requirements for business to offset the failure of government.?
5. Social upheaval. The growing discontent over perceived public inaction—on cost of living, climate, health care and more—has shot up the risk charts. Street protests are growing in the democratic world, where only 13% of people live, along with greater negative sentiments on social media. But even the most authoritarian regimes have not been able to cork the discontent. Protests like the kind seen in Iran and China may be the new norm.

Looking out 10 years, climate dominates the top four risks, followed by mass migration. By contrast, technology is not considered the risk it once was. (“Honey, I know the backyard is on fire, but check out this new WiFi, it’s awesome!”) The recent pressures of inflation and war threaten to syphon public and private capital from longer-term needs like climate mitigation and human capital, further reducing our chances of success. As the WEF’s risk report argues, growth can no longer be assumed and the fight for what the world can sustain will only intensify. That poses critical questions for Davos the world: Has the economic age of globalization given way to a political age of deglobalization? And who will pay the price?