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15 years of risk: from economic collapse to planetary devastation – World Economic Forum

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  • 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.

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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.

Image: World Economic Forum Global Risks Report 2020

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.

Image: World Economic Forum Global Risks Perception Survey 2019-2020

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.

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World Economic Forum articles may be republished in accordance with our Terms of Use.

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Economy

Beijing At A Loss On What To Do About Its Economic Challenges? – Forbes

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China’s annual “Two Sessions” conference has for decades revealed the party agenda to the faithful. This year’s meeting offered them little, a startling development given China’s huge economic and financial challenges – a property crisis, export shortfalls, demographic decline, a loss of confidence among consumers and private business owners, and growing hostility in foreign capitals. More than ever, China needs Beijing to act, to point the way to future action. The failure to address this need at the Two Sessions suggests that China’s leadership has run out of ideas.

Most telling was the absence of the traditional press conference. Every Two Sessions meeting has included a space for China’s leadership to interact with both domestic and foreign media. The senior men in government were not always forthcoming at these exchanges, but their evasive answers at least pointed out publicly what matters they considered touchy or awkward. When this year’s press conference was cancelled, one can only conclude that the good and the great in the Forbidden City worry about being embarrassed.

The authorities did announce a real growth target for 2024. They set it at “around 5 percent.” In one respect, this information can only be described as bland. It was expected and is very close to last year’s pace. In another respect, however, it confesses failure of a sort. It is, after all, barely over half the real growth rate China averaged up until 2019. And with all the problems, it is not clear that China can even make that rate. Last year the economy had a tailwind from pandemic recovery. None of that is in play in 2024. Meanwhile, the authorities never explained how they intended to achieve the growth.

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Infrastructure spending was mentioned, one trillion yuan ($132.9 billion) worth of it. Infrastructure is China’s default form of economic stimulus. But little was said about how China would finance such spending. Local governments, the usual source of infrastructure financing, face huge debt overhangs, some so severe that they cannot even meet the public service needs of their populations. True, Beijing said it was ready to take the unusual step of issuing central government debt to finance the spending. But even that raises questions. The government already faces record high budget deficits. The emphasis on “ultra-long bonds” may hint at how difficult financial matters have become. Long maturities will delay the need to repay the debt and show that Beijing does not expect an immediate return from its spending.

Little was said about the property crisis with all its adverse economic and financial ramifications. Despite the need for bold action on this front, all Beijing has mustered so far are the “white lists” in which local governments compile a list of failing real estate projects for financing that the state-owned banks would review before advancing the funds. The amounts discussed so far, however, are tiny compared with the need, barely over 5 percent of Evergrande’s initial failure two and half years ago. Some weeks back, talk emerged about a plan for the government to take over some 30 percent of the housing market. Although such an action would have brought China other severe problems, it would have been big enough to disguise the property crisis. Nothing as bold or substantive as that got a hearing at the Two Sessions.

On China’s deflation problem, the authorities did indicate a target of 3 percent inflation for the year but said nothing about how they planned to achieve it. To be sure, deflation is more a symptom than a cause of the country’s challenges, which in part lie with inadequate demand for consumption and capital spending by private business, but neither did China’s leadership say much about these problems either. The only concrete suggestion was a promise by the People’s Bank of China (PBOC) to cut interest rates more than the bank already has. Given the lack of an economic response to past rate cuts, this promise hardly seems an adequate answer. In any case, as soon as the conference ended, the PBOC at its own meeting decided against another interest rate cut.

Talk did center on new growth engines for the economy, what the conference referred to as “new productive sources.” There was little new here. Renewable energy, advanced technology, and electric vehicles led the list. Like so much else offered at the Two Sessions, the talk was all aspirational. No one suggested how China planned to promote these areas beyond what is already being done. Given the sorry state of China’s economy, that is not enough.

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If the Two Sessions is supposed to announce a guide to China’s future, this year’s meeting missed its mission, especially in the face of China’s many economic and financial problems. Perhaps more complete and substantive guidance will emerge at next month’s politburo meeting, but given how the Two Sessions went, that seems unlikely. China’s leadership seems to have run out of ideas.

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Economy

U.S. economic growth for last quarter revised up slightly to healthy 3.4% annual rate

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The U.S. economy grew at a solid 3.4 per cent annual pace from October through December, the government said Thursday in an upgrade from its previous estimate. The government had previously estimated that the economy expanded at a 3.2 per cent rate last quarter.

The Commerce Department’s revised measure of the nation’s gross domestic product – the total output of goods and services – confirmed that the economy decelerated from its sizzling 4.9 per cent rate of expansion in the July-September quarter.

But last quarter’s growth was still a solid performance, coming in the face of higher interest rates and powered by growing consumer spending, exports and business investment in buildings and software. It marked the sixth straight quarter in which the economy has grown at an annual rate above 2 per cent.

For all of 2023, the U.S. economy – the world’s biggest – grew 2.5 per cent, up from 1.9 per cent in 2022. In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1 per cent annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.

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Thursday’s GDP report also suggested that inflation pressures were continuing to ease. The Federal Reserve’s favoured measure of prices – called the personal consumption expenditures price index – rose at a 1.8 per cent annual rate in the fourth quarter. That was down from 2.6 per cent in the third quarter, and it was the smallest rise since 2020, when COVID-19 triggered a recession and sent prices falling.

Stripping out volatile food and energy prices, so-called core inflation amounted to 2 per cent from October through December, unchanged from the third quarter.

The economy’s resilience over the past two years has repeatedly defied predictions that the ever-higher borrowing rates the Fed engineered to fight inflation would lead to waves of layoffs and probably a recession. Beginning in March 2022, the Fed jacked up its benchmark rate 11 times, to a 23-year high, making borrowing much more expensive for businesses and households.

Yet the economy has kept growing, and employers have kept hiring – at a robust average of 251,000 added jobs a month last year and 265,000 a month from December through February.

At the same time, inflation has steadily cooled: After peaking at 9.1 per cent in June 2022, it has dropped to 3.2 per cent, though it remains above the Fed’s 2 per cent target. The combination of sturdy growth and easing inflation has raised hopes that the Fed can manage to achieve a “soft landing” by fully conquering inflation without triggering a recession.

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP growth. It will release its first estimate of January-March growth on April 25.

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Economy

Canadian economy starts the year on a rebound with 0.6 per cent growth in January

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The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada said Thursday.

The rate was higher than forecasted by economists, who were expecting GDP growth of 0.4 per cent in the month. December GDP was revised to a 0.1 per cent contraction from zero growth initially reported.

January’s rise, the fastest since the 0.7 per cent growth in January 2023, was helped by a rebound in educational services as public sector strikes ended in Quebec, Statistics Canada said.

WATCH | The Canadian economy grew more than expected in January: 

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Canada’s GDP increased 0.6% in January

41 minutes ago

Duration 2:20

The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada says.

“The more surprising news today was the advance estimate for February,” which suggested that underlying momentum in the economy accelerated further that month, wrote CIBC senior economist Andrew Grantham in a note.

Thursday’s data shows the Canadian economy started 2024 on a strong note after growth stalled in the second half of last year. GDP was flat or negative on a monthly basis in four of the last six months of 2023.

More time for BoC to assess

The strong rebound could allow the Bank of Canada more time to assess whether inflation is slowing sufficiently without risking a severe downturn, though the central bank has said it does not want to stay on hold longer than needed.

Because recent inflation figures have come in below the central bank’s expectations, “it appears that much of the growth we are seeing is coming from an easing of supply constraints rather than necessarily a pick-up in underlying demand,” wrote Grantham.

“As a result, we still see scope for a gradual reduction in interest rates starting in June.”

WATCH | Bank of Canada left interest rate unchanged earlier this month: 

Bank of Canada leaves interest rate unchanged, says it’s too soon to cut

22 days ago

Duration 1:56

The Bank of Canada held its key interest rate at 5 per cent on Wednesday, with governor Tiff Macklem saying it was too soon for cuts. CBC News speaks with an economist and a couple who might be forced to sell their home if interest rates don’t come down.

The central bank has maintained its key policy rate at a 22-year high of five per cent since July, but BoC governors in March agreed that conditions for rate cuts should materialize this year if the economy evolves in line with its projections.

The bank in January forecast a growth rate of 0.5 per cent in the first quarter, and Thursday’s data keeps the economy on a path of small growth in the first three months of 2024. The BoC will release new projections along with its rate announcement on April 10.

Growth in 18 out of 20 sectors

Growth in January was broad-based, with 18 of 20 sectors increasing in the month, StatsCan said. The agency said that real estate and the rental and leasing sectors grew for the third consecutive month, as activity at the offices of real estate agents and brokers drove the gain in January.

Overall, services-producing industries grew 0.7 per cent, while the goods-producing sector expanded 0.2 per cent.

In a preliminary estimate for February, StatsCan said GDP was likely up 0.4 per cent, helped by mining, quarrying, oil and gas extraction, manufacturing and the finance and insurance industries.

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