- Risk perception has shifted from the economy to the climate.
- Greater knowledge and experience of climate change prompted the shift.
- Short-termism could create blind spots and limit integrated efforts to mitigate risks.
The global risk landscape seems to be changing faster than our ability to manage it.
When the World Economic Forum first launched the Global Risks Perception Survey (GRPS) in 2006, economic risks filled most of the top spots by likelihood and impact.
Fifteen years and a Great Recession later, the world economy is again facing serious obstacles – inequality, protectionism and slowdown – yet economic risks have moved away from the survey’s spotlight.
In this year’s Global Risks Report – the 15th edition – all five of the top risks by likelihood, and three by impact are climate-related. Never before has one issue dominated the survey in this way, not even through the 2008 – 2009 financial crisis, when economic concerns occupied at most three out of the five top spots by likelihood, and four by impact.
What can explain this marked shift in risk perception – from economic to climate – even though many economic risks remain?
Examining the shift in risk perceptions
Four trends can explain why risk perceptions have shifted so drastically:
1) Climate change is a priority for youth
The world’s young people are tremendously concerned about the fate of the planet. Ninety percent of respondents to the GRPS from the Forum’s Global Shapers Community – younger community leaders – believe that “extreme heat”, “destruction of ecosystems” and “health impacted by pollution” will worsen in 2020. They also rate the impact of these events as extreme and imminent.
Young people have made their voices heard across the world, not only using social media, but using their feet and their ballot papers. Last year, millions of schoolchildren participated in climate strikes worldwide, young Europeans were decisive in the Greens’ parliamentary election success, and recent polling suggests environmental policy will be pivotal for young Americans in the 2020 elections. This generation’s activism has likely influenced global risk perceptions.
2) Exposure to better information
More accurate climate-change data has been released in recent years. The IPBES Global Assessment Report on Biodiversity and Ecosystem Services, a landmark assessment of the state of the planet, was released in May 2019. Similarly, the Met Office Hadley Centre’s HadSST4 dataset, the most widely used source of sea surface temperature data, was updated just last year to show that oceans have warmed more than previously estimated. Both warned of a much more dire future for the planet – and a shorter timeframe to avert it.
3) Direct contact with climate change
Extreme weather events have hit every continent and the frequency of natural disasters has increased to one per week. Over the past few years, Belgium, France, Germany, Luxembourg, the Netherlands and the United Kingdom have seen record-breaking heatwaves; fierce wildfires have blazed through Australia, Canada, Chile, Spain and the US; while Bangladesh, India, Thailand and Sri Lanka have registered severe and longer droughts. As a result, more people are feeling the impacts of climate change, many of whom are in regions of the world that were previously unaffected.
4) Internalization of economic stagnation
Years of overcoming economic hardship may have led respondents to believe that economic risks can be weathered in a way that climate change cannot. After all, the 2010s were the slowest post-crisis period in terms of growth since the 1970s – the world economy has been stuck at approximately 3% growth since the Great Recession.
Moreover, newer generations may no longer see a precarious economy as a risk, but simply as a reality. For example, Americans born between 1980 and 1989 are 34% less well off than earlier generations, 67% of young Latin Americans have experienced financial instability, and those in their 30s in the United Kingdom are “the first post-war cohort not to at least start working-age life with higher incomes than their predecessors”.
The environmental wager
It is no doubt welcome news that stakeholders are worried about the fate of the planet. It means there is increased awareness of the grave threats of environmental degradation; which hopefully will translate into more ambitious climate action.
However, the drastic and relatively quick shift in risk perceptions – from economic to environmental in the GRPS – is potentially troubling. Because environmental and economic risks are inextricably linked, risk perceptions that account for only one over the other mean blind spots may be arising and integrated mitigation efforts may be lacking.
The stable – albeit sluggish – economy of the past decade has incentivized the development of green practices, but years of progress could be offset by a tougher economic context. The global economy is showing signs of a slowdown that could last for many years, and if stakeholders view economic and environmental risks as distinct, there is a higher likelihood that short-termism will take hold as creating opportunities for economic advancement becomes more pressing.
In the near future, immediate economic and political concerns could arise, but they should not fully displace ongoing environmental risks from our perceptions.
License and Republishing
By the numbers: Economic effects of China coronavirus – Aljazeera.com
Suspended flights, cancelled tours, temporary restaurant closures, and millions of people in lockdown amid an extended nationwide holiday are just some of the results of a contagious new coronavirus that has caused more than 80 deaths in China.
At the epicentre of the outbreak is Wuhan, a Chinese city of more than 11 million people, where the disease was first recorded and is now home to the highest number of cases.
Touted as China’s Chicago, fast-growing Wuhan was expected to record a regional economic growth rate of up to 7.8 percent in 2020, according to local government estimates. This would make it a key pillar of growth in China’s sluggish economy, which is expected to grow by just 6 percent, according to central government figures.
However, as shutters roll down in shops and public transportation comes to a standstill as the coronavirus spreads, one of China’s brightest economic spots could end up dimming the prospects of a country already struggling with its weakest economic growth in 29 years.
China said on Monday that its finance ministry and National Health Commission have extended 60.33 billion yuan ($8.74bn) to help contain the virus.
International airlines ranging from Taiwan’s China Airlines to Singapore’s Scoot have cancelled flights to and from Wuhan. According to data from aviation data analytics firm Cirium, Wuhan receives 55 international flights each week from more than 20 countries.
In response to questions from Al Jazeera, AirAsia and Cathay Pacific referred to official statements regarding the suspensions of flights from Wuhan.
As of Sunday, Cathay Pacific extended the suspension of its flights to and from Wuhan until the end of March and allowed crew members and front-line airport employees to wear face surgical masks.
Meanwhile, AirAsia has temporarily cancelled all flights from Kota Kinabalu in Malaysia, Bangkok and Phuket to Wuhan until January 28, resulting in some three flights suspended daily, based on their weekly frequency schedule.
Passengers have been offered full refunds, and the opportunity to book a new travel date within 30 days, or credit an AirAsia account to be used within 90 days, the airline said.
Neither airline responded directly to questions about the costs they might incur from the suspensions of their daily flights to Wuhan.
As consumption spending has become the most important growth driver for the Chinese economy in recent years, a key near-term risk is a negative effect the virus has on Chinese consumer sentiment, according to Rajiv Biswas, chief economist for Asia Pacific at IHS Markit.
“With many entertainment venues in China, including an estimated 11,000 cinema theatres as well as major resorts such as the Disneyland park in Shanghai having temporarily closed due to the Wuhan virus outbreak, the immediate negative impact on China’s entertainment industry is already significant,” he said in a note shared with Al Jazeera.
Other Asia-Pacific countries are also vulnerable to a further economic slowdown in China, as well as a decline in Chinese tourism as the country imposes travel bans on outgoing group tours, Biswas said.
“The rapid rise in household incomes in China has triggered a boom in Chinese tourism visits abroad, which have risen from 20 million in 2003 to 150 million in 2018. Consequently, the vulnerability of many Asia-Pacific economies to a slowdown in Chinese tourism visits has increased significantly over the past two decades,” he said.
How bad can it get?
On Monday, shares of tour operators fell in Thailand and Japan as China banned outbound group tours to contain the spread of the virus.
Singapore is also bracing for economic fallout from the virus.
“We certainly expect there to be an impact on our economy, business and consumer confidence this year, especially as the situation is expected to persist for some time,” Singapore’s Trade Minister Chan Chun Sing said on Monday.
At a news conference, Chan said Singapore’s government is considering support measures for hard-hit sectors such as tourism.
Chinese nationals make up the largest share of visitors to Singapore, one of the worst-hit countries outside of China in the 2003 outbreak of Severe Acute Respiratory Syndrome (SARS), another strain of the coronavirus which killed 800 people globally.
A 2018 study estimated that another global influenza pandemic could kill 720,000 people and cost $500bn, or 0.6 percent of global income per year.
That is within the range of estimated global losses from global warming (between 0.2 percent and 2 percent of global income).
Lower and middle-income countries would suffer the most, with an estimated 1.6 percent of annual income lost if an influenza pandemic occurred.
High-income countries are expected to lose about 0.3 percent of the annual income.
China-wide, if spending on things including discretionary transport and entertainment dropped by 10 percent, overall gross domestic product (GDP) growth would fall by about 1.2 percentage points, according to “back of the envelope” estimates from Shaun Roache, chief economist for the Asia Pacific region at global ratings agency Standard & Poor’s.
Japan warns about risks to economy from China virus outbreak – Aljazeera.com
Asian stocks extended a global selloff as the outbreak in China, which has killed 106 people and spread to many countries, fuelled concern over the damage to the world’s second-largest economy – an engine of global growth.
“There are concerns over the impact to the global economy from the spread of infection in China, transportation disruptions, cancellation of group tours from China and an extension in the Lunar Holiday,” Yasutoshi Nishimura told a news conference after a regular cabinet meeting on Tuesday.
“If the situation takes longer to subside, we’re concerned it could hurt Japanese exports, output and corporate profits via the impact on Chinese consumption and production,” he said.
China is Japan’s second-largest export destination and a huge market for its retailers. Chinese visitors made up 30 percent of all tourists visiting Japan last year, and their spending made up 40 percent of the total receipts from foreign tourists last year, an industry survey showed.
The outbreak could hit Japanese department stores, retailers and hotels, which count on a boost to sales from a jump in the numbers of Chinese tourists during the Lunar New Year holiday.
Carmaker Honda Motor, which has three plants in Wuhan, the capital of Hubei province and the epicentre of the outbreak, plans to evacuate some staff. Aeon will close its shopping malls in the city until Thursday.
Economists at SMBC Nikko Securities estimate that if a ban that China has imposed on overseas group tours lasts another six months, it could hurt Japan’s economic growth rate by 0.05 percent.
Some expect the potential damage could be much worse.
Hideo Kumano, the chief economist at Dai-ichi Life Research Institute, said the decline in tourists from China could hurt Japan’s gross domestic growth rate by up to 0.2 percent.
“The biggest worry is the risk the negative impact from the outbreak persists and hits [the economy] during the Tokyo Olympic Games,” when a huge number of Chinese tourists are expected to visit Japan, he said.
“If the number of visitors decrease rather than increase, the hit to Japan’s consumer industry will be quite large.”
Japan will host the 2020 Olympics in July and August.
Reuters news agency
Three reasons coronavirus won’t derail China’s economy – MarketWatch
By Shang-Jin Wei
Published: Jan 27, 2020 4:57 pm ET
Investors are overreacting to the Wuhan epidemic
Pedestrians wearing face masks cross a road in Hong Kong on Monday.
NEW YORK (Project Syndicate) — The panic generated by the new coronavirus, 2019-nCov, which originated in Wuhan, one of China’s largest cities and a major domestic transport hub, reminds many of the fear and uncertainty at the peak of the 2003 SARS crisis.
China’s stock market
, after rising for months, has reversed itself in recent days, and global markets have followed suit,
apparently reflecting concerns about the epidemic’s impact on the Chinese economy and global growth. Are these worries justified?
My baseline projection is that the coronavirus outbreak will get worse before it gets better, with infections and deaths possibly peaking in the second or third week of February. But I expect that both the Chinese authorities and the World Health Organization will declare the epidemic to be under control by early April.
Under this baseline scenario, my best estimate is that the virus will have only a limited negative economic impact. Its effect on the Chinese growth rate in 2020 is likely to be small, perhaps a decline on the order of 0.1 percentage point of gross domestic product.
The effect in the first quarter of 2020 will be big, perhaps lowering growth by one percentage point on an annualized basis, but this will be substantially offset by above-trend growth during the rest of the year. The impact on world GDP growth will be even smaller.
Such a prediction recalls the experience of the 2003 SARS crisis: a big decline in China’s GDP growth in the second quarter of that year was then largely offset by higher growth in the subsequent two quarters. While the full-year growth rate in 2003 was about 10%, many investment banks’ economists over-predicted the epidemic’s negative impact on growth.
Looking at annual real GDP growth rates from 2000 to 2006, it is very hard to see a SARS effect in the data.
Some fear that the epidemic’s timing — at the start of the week-long Chinese New Year celebration, and in the middle of traditional school-break travels — will exacerbate the economic fallout by keeping many people away from shops, restaurants, and travel hubs.
But three important factors may limit the virus’s impact.
First, in contrast to the SARS outbreak, China is now in the internet commerce age, with consumers increasingly doing their shopping online. Much of the reduction in offline sales owing to the virus will likely be offset by an increase in online purchases.
And most of the vacations canceled today will probably be replaced by future trips, because better-off households have already set aside a holiday travel budget.
Many factories have scheduled production stoppages during the Chinese New Year holidays anyway, so the timing of the epidemic may minimize the need for further shutdowns. Similarly, many government offices and schools had planned holiday closures independently of the virus outbreak.
The government has just announced an extension of the holiday period, but many companies will find ways to make up the lost time later in the year. The short-term negative impact is thus likely to be concentrated among restaurants, hotels, and airlines.
Second, all reports indicate that the Wuhan coronavirus is less deadly than SARS (although it may have a faster rate of transmission initially). Equally important, the Chinese authorities have been much swifter than they were during the SARS episode in moving from controlling information to controlling the spread of the virus.
By implementing aggressive measures to isolate actual and potential patients from the rest of the population, the authorities have improved their chances of containing the epidemic much sooner. That, in turn, increases the likelihood that the lost economic output this quarter will be offset by increased activity in the remainder of the year.
Third, whether or not China’s trade negotiators realized the severity of the Wuhan virus when they signed the “phase one” trade deal with the United States on Jan. 15, the timing of the agreement has turned out to be fortunate.
By greatly increasing its imports of facemasks and medical supplies from the U.S. (and elsewhere), China can simultaneously tackle the health crisis and fulfill its promise under the deal to import more goods.
The virus’s impact on other economies will be even more limited.
During the last half-decade, many major central banks have developed models to gauge the impact of a slowdown in China on their economies. These models were not built with the current health crisis in mind, but they do take into account trade and financial linkages between China and their respective economies.
As a rule of thumb, the negative impact of a decrease in China’s GDP growth on the U.S. and European economies is about one-fifth as large in percentage terms.
For example, if the current coronavirus epidemic lowers China’s growth rate by 0.1 percentage point, then growth in the U.S. and Europe is likely to slow by about 0.02 percentage point. The impact on Australia’s economy may be twice as large, given its stronger commodity-trade and tourism links with China, but a 0.04-percentage-point reduction in growth is still small.
Such calculations assume that the coronavirus does not spread widely to these countries and cause direct havoc. This currently seems unlikely, given the low number of cases outside China.
Of course, the impact on China and other economies could be more severe if the coronavirus crisis were to last much longer than this baseline scenario assumes.
In that case, it is important to remember that Chinese policy makers still have room for both monetary and fiscal expansion: the banking-sector reserve ratio is relatively high, and the share of public-sector debt to GDP is still manageable compared to China’s international peers. By using this policy space when necessary, China’s authorities could limit the ultimate impact of the current health crisis.
The coronavirus outbreak is understandably causing alarm in China and elsewhere. But from an economic perspective, it is too early to panic.
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