Risk Assessment

The current coronavirus crisis emphasises the need for the European Union to devote more effort to anticipatory governance, notably through analysis of medium- and long-term global trends, as well as structured contingency planning and the stress-testing of existing and future policies. In order to contribute to reflection on, and discussion about, the implications of the coronavirus pandemic for EU policy-making, this paper offers an initial ‘mapping’ of some of the potential structural risks which could confront Europe over the coming decade, with 66 such risks analysed briefly in a series of short notes. The document then goes on to take a closer look at some of the more immediate risks to be considered in the near term and outlines possible EU action to prevent or mitigate them over the remainder of the 2019-24 institutional cycle.

Is the world sleepwalking into a crisis? Global risks are intensifying but the collective will to tackle them appears to be lacking. Instead, divisions are hardening. The world’s move into a new phase of strongly state-centred politics, noted in last year’s Global Risks Report, continued throughout 2018. The idea of “taking back control”— whether domestically from political rivals or externally from multilateral or supranational organizations— resonates across many countries and many issues. The energy now expended on consolidating or recovering national control risks weakening collective responses to emerging global challenges. We are drifting deeper into global problems from which we will struggle to extricate ourselves.

There has arguably never been a greater disconnect between the apparent strength of the global economy and the magnitude of geopolitical, financial and operational risks that organisations are facing. The Economist Intelligence Unit expects momentum in the global economy to remain strong in 2018. The US economy will continue to motor along, the euro area will absorb more of the slack in its labour markets and Chinese consumption, investment and exports will all remain strong. Higher commodity prices will prove a fillip for emerging-market exporters, while a gradual tightening of monetary conditions will not take hold to the extent that it slows growth. Taken together, these factors mean that the global economy is forecast to expand by 3% in 2018, up from a mediocre annual average pace of 2.6% in 2015-16.
Despite the encouraging headline growth figures, the global economy is facing the highest level of risk in years. Indeed, this favourable economic picture appears to come from a completely different world to the one where headlines are dominated by protectionist rhetoric, major territorial disputes, terrorism, surging cyber-crime and even the threat of nuclear war. The global economy has seen periods of high risk before, with threats emanating from the regional and the national level, as well as from state and non-state actors. What is unique about this period of heightened risk, however, is that unlike other periods in recent decades, risks are also originating from the global level, as the US questions its role in the world and partially abdicates from its responsibilities. These moves have signalled the end of the US-led global order and the beginning of a new order. Although the new order will emerge over the next decade, there will be a period of uncertainty as multiple global and regional powers vie for power and influence. For organisations attempting to negotiate these concerns in order to take advantage of the numerous and growing economic opportunities, the stakes are obviously high.
In this report we identify and assess the top ten risks to the global political and economic order. Each of the risks is not only outlined, but also rated in terms of its likelihood and its potential impact on the global economy. This is a small snapshot of our risk quantification capabilities. We also provide operational risk analysis on a country-by-country basis for 180 countries through our Risk Briefing. Meanwhile, we provide detailed credit risk assessments on 131 countries via our Country Risk Service.