The tremulous 2020s
Uncertainty is clouding CEOs’ view from the top, but the world can’t wait for the geopolitical and geo-economic fog to lift. David Benyon sums up 2020’s risk warning.
Business leaders are in a blue funk this January, it seems. The winter gloom isn’t just seasonal affective disorder in London, but a widespread pessimism, held worldwide for the decade ahead. Fraying fundamentals for the world economy and an unsettled era for geopolitics mean business confidence has eroded among CEOs across the globe.
That was the argument put forward in the 15th edition of the World Economic Forum’s (WEF) Global Risks Report, published this month. The global economy is faced with a “synchronized slowdown”, according to WEF president, Børge Brende.
Brende’s warning was echoed by PwC’s 23rd Annual Global CEO Survey, also out this January. CEOs looking ahead to 2020 showed a record level of pessimism, from record pessimism just two years ago, the advisory firm reported.
“What is clouding the view from the top? In a word, uncertainty,” PwC warned.
“In the past two years, the percentage of CEOs who believe global GDP growth will decline has increased tenfold (from 5% to 53%)…This caution has translated into CEOs’ low confidence in their own organisation’s outlook,” PwC added.
But bosses will have to fight their fears if the economy is to avoid the present pessimism becoming a self-fulfilling prophecy for the decade ahead. “The world cannot wait for the fog of geopolitical and geo-economic uncertainty to lift,” according to the WEF’s report.
“On key issues such as the economy, the environment, technology and public health, stakeholders must find ways to act quickly and with purpose within an unsettled global landscape. Opting to ride out the current period in the hope that the global system will ‘snap back’ runs the risk of missing crucial windows to address pressing challenges,” the study stressed.
Geopolitics, climate, cyber
These three threats dominate the WEF’s risk radar. Let’s start with politics, as it’s a risk firms have often shied away from engaging with more actively, lest they stir up trouble for themselves. According to the WEF’s Global Risks Perception Survey, multinationals see economic confrontations and domestic political polarisation as top risks in 2020.
The WEF’s report describes what we have already witnessed: the post-Cold War era of multilateralism is over; forces of nationalism and protectionist trade wars are back; and there is a shift in mindset among stakeholders, from multilateral to unilateral, and from cooperative to competitive.
“Low trade barriers, fiscal prudence and strong global investment—once seen as fundamentals for economic growth—are fraying as leaders advance nationalist policies. The margins for monetary and fiscal stimuli are also narrower than before the 2008–2009 financial crisis, creating uncertainty about how well countercyclical policies will work,” the report said.
Fragmented geopolitics are mirrored by problems facing the previously borderless internet, long seen as a leading force of globalisation. The possibility of fragmented cyberspace is a geo-economic risk that threatens to prevent the full potential of next generation technologies from being realised, according to the WEF.
PwC’s report was in accord with this, describing the risk as “setting up guard rails in cyberspace”. No globally agreed supervision of the internet has emerged, while cyber risks have multiplied, from fraudsters and financial criminals to government-sponsored attacks and espionage.
The more national and regional data protection rules, barriers, firewalls and censorship put in place by countries for various regions, the less of a globalised force for economic growth the web becomes.
“As a result, it is likely that the internet will become more fractured… If the global economy is to realise the full promise of the Fourth Industrial Revolution, a greater level of coordination on these issues will be necessary,” PwC warned.
After 2019 it would be impossible for global warming to not be one of the report’s headlines. Terrible forest fires in Australia in the New Year followed 2019 as the second warmest year on record for land and ocean temperatures since 1851, noted Aon’s weather, climate and catastrophe report, released in January.
The last five years are on track to be the warmest on record, natural disasters are becoming more intense and more frequent, and last year witnessed unprecedented extreme weather throughout the world, the WEF noted.
Record temperatures reached 46°C in France and 42.6°C in Germany, while in the January to May period produced 399mm of rainfall in the US, its wettest on record. Category 5 Hurricane Dorian made multiple landfalls in The Bahamas as a 185 mph (295 kph) storm; tying with the 1935 Labor Day Hurricane as the strongest landfalling storm on record in the Atlantic Ocean.
“Climate change is striking harder and more rapidly than many expected,” warned the WEF. “Alarmingly, global temperatures are on track to increase by at least 3°C towards the end of the century—twice what climate experts have warned is the limit to avoid the most severe economic, social and Executive Summary The Global Risks Report 2020 7 environmental consequences.”
PwC’s report added: “The tide has turned on climate change. Organisations worldwide are starting to recognise its risks and even its potential opportunities. Compared with ten years ago, CEOs today are far more likely to see the benefits of going ‘green,’ such as reputational advantage, new product and service opportunities, and government or financial incentives.”
David has been covering insurance news for over a decade, editing publications such as Reactions and Strategic risk.