Global Risks 2021: Fractured Future

The immediate human and economic costs of COVID-19 are severe. They threaten to scale back years of progress on reducing global poverty and inequality and further damage social cohesion and global cooperation, which were already weakening before the virus struck.

New barriers to individual and collective advancement will likely result from the pandemic as the world faces the sudden disruption of social interactions, a widening digital divide, abrupt shifts in markets and consumer behaviour, loss of education and jobs, and challenges to democracy and international relations. “Digital inequality”, “youth disillusionment” and “social cohesion erosion”—newly included in the Global Risks Perception Survey (GRPS)—were all identified by respondents as critical short-term threats.

A digital leap forward—disrupting industry, education, labour markets, and the balance of power between nations—risks widening the gap between the technological “haves” and “have-nots”. All generations and groups have been affected by the crisis: older populations are the most vulnerable to the pandemic itself, and youth face new barriers to social mobility, strains on mental health, uncertain economic prospects and the continued degradation of the planet. Climate change—to which no one is immune, nor can the world vaccinate against it—continues to be catastrophic: “climate action failure” is the most impactful and second most likely long-term risk identified in the GRPS.

Billions of people worldwide are at heightened risk of missing out on future economic opportunities, and the benefits of a resilient global community. According to the GRPS, “livelihood crises” will be a critical threat over the next two years, and their impact is likely to continue throughout the decade.

The crisis has also challenged national policy-making and international relations in ways that threaten lasting impacts. Institutions and policies to support international coordination were already in decline, and responses to the pandemic have caused new geopolitical tensions. With new stalemates and flashpoints in view, GRPS respondents rated “state collapse” and “multilateralism collapse” as critical threats over the next five to ten years.

Despite these challenges, there is also space for building resilience. In this chapter, we close with a reflection on how governments, businesses and societies can begin to take steps for better preparedness in the face of perpetual global risk (see Box 1.1).

Damage and disparity

The effects of COVID-19, along with some aspects of the policy response, however necessary, have left societies and economies damaged, widened existing disparities within communities and between nations, disproportionately harmed certain sectors and societal groups, and complicated the pathway for the world to achieve the United Nations Sustainable Development Goals by 2030.

Economic shockwave
The global economy has now sunk to its deepest crisis in peacetime. World output is expected to have shrunk by 4.4% in 2020 (see Figure 1.1).¹ In comparison, the 2008–2009 Financial Crisis caused the world economy to contract by 0.1%. Data for the third quarter of 2020 hinted that recovery was underway, but the impact of surging infections in the fourth quarter remains to be measured: many countries were registering more daily cases than they had in the second quarter, when the G20 economies contracted at an annualized rate (see Table 1.1 for data on the seven largest economies).² The economic contraction is expected to increase inequality in many countries;³ but an uneven economic rebound can exacerbate the inequities. At the time of writing, key capital markets had surged above pre-pandemic levels,⁴ yielding gains that will mostly benefit wealthy stockholders.

Figure 1.1 IMF World Output Projections

The impact of the pandemic on livelihoods has been catastrophic, especially on those who have no savings, have lost their jobs or faced pay cuts. Working hours equivalent to 495 million jobs were lost in the second quarter of 2020⁵ —14% of the world’s entire workforce.⁶ At the time of writing, only half were expected to have been recovered by the end of the year.⁷ Youth, unskilled workers, working parents—especially mothers—and already-disadvantaged minorities have been especially hard hit: 70% of working women across nine of the world’s largest economies believe their careers will be slowed by the pandemic’s disruption,⁸ while 51% of youth from 112 countries believe their educational progress has been delayed.⁹

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The economic impact varies across regions. The Euro area and Latin America are expected to have contracted the most in 2020.¹⁰ Only 28 economies are expected to have grown in 2020, with China the only G-20 country among them.¹¹ In low- and lower-middle-income countries, severe and long-lasting humanitarian impacts could be exacerbated by lower levels of financial support and fewer aid workers.¹² Poor working conditions and lack of social protections are likely to aggravate the impact on the world’s 2 billion informal workers.¹³

Table 1.1 Peak Impact of COVID-19 on Key Macroeconomic Indicators: Seven Largest Economies

Health fallout
At the time of writing, nearly 100 million people worldwide had contracted COVID-19 and more than 2 million had died,¹⁴ making SARS-CoV-2 one of the deadliest viruses in history.¹⁵ Global infections were rising, with upwards of 600,000 new cases and more than 10,000 deaths every day.¹⁶

Long-term health impacts remain unknown: in South Korea, a survey found that 90% of recovered COVID-19 patients were still suffering from physical and psychological side effects such as ageusia (loss of taste), anosmia (loss of smell), attention disorder and fatigue.¹⁷ Collateral health impacts—physical and mental—will continue to have devastating consequences worldwide: in the United States, for example, delayed treatment of emergencies, chronic diseases and psychological distress have already caused a death rate of 6% over what would normally be expected.¹⁸

The pandemic has strained healthcare systems, exposing their lack of capacity. Hospitals worldwide were quickly overwhelmed, and at the time of writing many were again at risk—from several countries in Europe¹⁹ to India,²⁰ Mexico,²¹ South Africa²²and the United States.²³ Some countries have reported new shortages of medical supplies.²⁴ Healthcare professionals have struggled with anxiety, depression, fear, isolation and even social stigma.²⁵ In countries such as Australia,²⁶ Colombia,²⁷ Ecuador,²⁸ India,²⁹ the United Kingdom,³⁰ and the United States,³¹ financial, physical and mental stress have caused many to plan to stop working or leave the profession.

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Underlying disparities
The damage from COVID-19 has been worsened by long-standing gender, race, age and income inequalities. Disadvantaged groups went into the crisis with lower resilience as a result of disparities in well-being; financial stability and security; and access to healthcare, education and technology. Previous editions of the Global Risks Report³³ have highlighted that income inequality, despite declining on a global scale, had reached historical highs in many countries (see, for example, The Fraying Fundamentals chapter in the 2020 edition of the report).³²

Health systems globally were already under strain from gathering pressures and emerging public health threats—a worrying trend analysed in depth in the False Positive chapter of last year’s Global Risks Report. Half of the world’s population lacks access to essential health services, and shortfalls in public health push 100 million people into extreme poverty every year.³⁴ This has amplified the pandemic’s impact on the physical well-being of people in low-income households,³⁵ women,³⁶ and the elderly.

Sixty percent of adults lacked basic digital knowledge and skills when workplaces and schools across the world suddenly closed to curb the spread of COVID-19, forcing a rapid leap to online operations.³⁷ Many students lacked access to a computer for schoolwork: percentages of students affected ranged from 25% in China to 45% in Mexico and 65% in Indonesia.³⁸ Digital divides were already worrisome before the pandemic: in 2018, reporting that half the world’s population were connected to the internet, the International Telecommunication Union called to “redouble our collective efforts to leave no one offline”.³⁹

Little left to lose

The development of multiple vaccines may herald the beginning of recovery from the COVID-19 crisis—but the structural fissures that the crisis exacerbated, from individual well-being to societal resilience and global stability, threaten to make that recovery deeply uneven. “Livelihood crises”, “digital inequality”, “youth disillusionment” and “social cohesion erosion” all show up in the GRPS as critical global threats for the next two years.

Narrowing pathways
Across developed and developing economies alike, the number of people without access to quality and affordable healthcare, education or digital tools is at risk of increasing. Billions of people face narrowing pathways to future well-being.

In the short term, equitable and effective vaccine distribution is at risk from protectionist tendencies and geopolitical tensions—just as these tendencies and tensions put essential medical supplies at risk when the pandemic started (see Hindsight). In the longer term, inequitable access to quality healthcare will persist as a result of continued stress on healthcare systems globally. Health capacity in some European countries has already suffered from prolonged austerity measures.⁴⁰ In Sub-Saharan Africa, 20% of people over 60—the highest-risk age group—are at least three hours away from the nearest health facility.⁴¹ Such obstacles have complicated the response to the pandemic. Looking ahead, failing to close public health gaps will exacerbate existing vulnerabilities and risk further humanitarian and economic damage.

Barriers to education and technology—long-proven channels for economic advancement—have grown higher; especially for youth (see Chapter 3, Pandemials). Education systems worldwide are set to undergo a challenging structural transformation underpinned by widespread adoption of online learning. This shift can potentially reduce costs and expand access,⁴² but students and workers who lack the digital tools, online access and knowledge to participate are at risk of being excluded (see Chapter 2, Error 404).⁴³ “Digital inequality”—ranked as the fifth most concerning short-term threat to the world—is increasing within and between countries. The growing gap between the technological “haves” and “have-nots”—amid pressures on public and private finances that could limit critical investments in digital education—will impede individual economic mobility.

Physical mobility—another channel for economic advancement—is at risk too. Domestically, the digital leap forward can allow businesses to reduce costs by relocating them away from city centres, but workers in hands-on industries or without the means or flexibility to move to new production centres could be stranded. Internationally, restrictions on movement brought in during the pandemic may be slow to ease given geopolitical tensions, jeopardizing opportunities for the world’s 250 million migrant workers and their dependents.⁴⁴ Global remittances are expected to decrease by more than 14% by 2021.⁴⁵

Societal fragmentation
As public health gaps, digital inequality, educational disparities and unemployment—risks that result from a complex combination of existing inequalities and the impact of the pandemic—affect vulnerable groups the most, they may further fray social cohesion. Unsurprisingly, “social cohesion erosion” and “livelihood crises” are among the highest-likelihood and highest-impact long-term risks in the GRPS (see Figure II, Global Risks Landscape). Too many people have little left to lose.

The global recession is now expected to force as many as 150 million more people into extreme poverty, increasing the total to 9.4% of the world’s population—it was expected to fall to 8% by the end of 2020.⁴⁶ This setback in the global development agenda will heighten vulnerability to future shocks and threaten the erosion or collapse of states: more than half of the respondents to the GRPS believe “state collapse” is a critical long-term threat (see Figure I, Global Risks Horizon).

Increasing levels of public and private debt may reduce scope for further stimulus—which was a powerful tool in advanced economies—requiring trade-offs between investments in stronger social protection, reskilling and upskilling of disadvantaged workers, preparing youth for a drastically changed labour market, and economic transformation towards greener energy and infrastructure (see Chapter 5, Imperfect Markets). Respondents to the GRPS believe mismanaging these trade-offs will compound the risks of “debt crises”, “social security collapse”, “digital inequality” and “youth disillusionment”; triggering “livelihood crises” globally (see Figure III, Global Risk Network).

Developed and developing countries with weak public finances face a harder road to recovery: according to the International Monetary Fund (IMF), seven low-income countries are in debt distress, with another 28 at high risk.⁴⁷ Even where fiscal stimulus has been substantial (see Figure 1.2), it is not clear whether it will lead to a more equitable recovery.

Figure 1.2: Fiscal response to COVID-19 and Expected Growth in 2020

Divisiveness had been increasing before the pandemic in many countries—as analysed in the Fraying Fundamentals chapter of last year’s Global Risks Report⁴⁸ —with growing perceptions of economic and political systems being rigged and unrepresentative. While social distancing measures temporarily interrupted popular protests in 2020, they have resumed in countries ranging from Belarus to France, Germany, Russia, Sudan and the United States.⁴⁹

Systemic issues that sparked protests in 2020 include corruption, racial inequality and police brutality.⁵⁰ In some countries, perceptions that COVID-19 responses were inadequate or too stringent have aggravated public discontent.⁵¹ Young people have increasingly voiced discontent over climate, economic, political and social injustices they believe have been caused by older generations (see Chapter 3, Pandemials). Loss of plurality, erosion of diverse representation in positions of power, financial hardship and intergenerational frictions—which will continue worsening if profound inequalities are unaddressed—risk exacerbating societal divisiveness and severely weakening communities’ resilience.

Heightened instability
Domestic political challenges, growing fragmentation in many societies and geopolitical tensions left the world woefully underprepared for a crisis of the magnitude of COVID-19 and amplified its impacts (see Hindsight). Flashpoints that are likely to hamper national and international stability would deteriorate multilateral capacity to respond to future global shocks.

Further polarization generated by the outcome of the US elections may create domestic obstacles for the new administration, hindering financial, political, technical and international cooperation commitments on global issues such as climate change, digital governance, free trade and international security. The formalization of Brexit, rising euro-scepticism and damage from subsequent waves of COVID-19 may weaken support among EU members for a coordinated green recovery and threaten the European Union’s consolidation as a balancing third power.

Increasing tensions between China and India—with the former expanding its regional economic interests through the recently signed Regional Comprehensive Economic Partnership (RCEP)—could weaken regional and global trade and growth.⁵² In Africa, worsening employment and investment trends threaten the anticipated benefits of the delayed African Continental Free Trade Agreement (AfCFTA),⁵³ which could catalyse civil unrest and aggravate humanitarian crises.⁵⁴

Regional alliances are likely to form out of economic expediency and tightening relations with superpowers, but the changing relationship between them is creating uncertainty for other nations around international rules and norms—from cybersecurity and 5G technology to climate action, natural resources and trade (see Chapter 4, Middle Power Morass). Public health is becoming a new frontier for geopolitical rivalry. Vaccine diplomacy and conflicts over other critical supplies are likely to create further tensions and require complex negotiations, impeding international coordination and the effectiveness of the multilateral system to address global concerns (see Hindsight).

No vaccine for environmental degradation

Without societal cohesion and stable international platforms, future transboundary crises will have greater impacts. The GRPS draws attention to blind spots in collective responses to a range of risks—such as “debt crises”, “mental health deterioration”, “tech governance failure” and “youth disillusionment” (see Appendix B, Figure B.1 Global Risk Response)—but foremost among these blind spots are “climate action failure” and “biodiversity loss”.

Last year, for the first time in 15 years of the GRPS, the five most likely long-term risks were environmental—analysed in last year’s Global Risks Report chapters A Decade Left and Save the Axolotl. The World Economic Forum’s COVID-19 Risks Outlook, published in May 2020,⁵⁵ analysed how the crisis could stall progress on climate action. This year, GRPS respondents ranked environmental risks as four of the top five by likelihood—“infectious diseases” is fourth.

Global CO₂ emissions fell by 9% in the first half of 2020, when COVID-19 forced most economies to shut down for weeks.⁵⁶ A similar decrease is required every year for the next decade to maintain progress towards limiting global warming to 1.5°C (see Figure 1.3) and avoid the worst effects of climate change.⁵⁷ However, emissions bounced back after the 2008–2009 Financial Crisis.⁵⁸ Collective efforts are needed to prevent a repeat as economies emerge from the pandemic. Growth and emissions must be decoupled and transition risks managed in an urgent evolution to a low-carbon economy. At present, only four of the world’s largest economies have assembled recovery packages that will produce a net environmental benefit.⁵⁹

Figure 1.3: Global Emissions and Warming Goals

The delayed UN Climate Change Conference COP26 in November will be a pivotal moment for the world’s largest emitters to commit to more aggressive national targets and agree on rules for carbon trading—specifically Article 6 of the Paris Agreement⁶⁰—that can accelerate investments in the transition to a low-carbon global economy. The UN Biodiversity Conference COP15 and UN Convention to Combat Desertification COP15 must likewise raise ambitions for species protection and sustainable land management. Failure to act would inevitably lead to catastrophic physical impacts and severe economic harm that would require costly policy responses.

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A synergetic recovery

The speed and scale of policy responses to the pandemic have shown what is possible (see Box 1.1): citizens now know the power political leaders can wield when they are convinced that the challenge demands it. Many citizens who feel they have nothing left to lose will demand equally swift responses to deeply felt concerns. For some, climate change requires immediate action; others will prioritize jobs to ensure the most vulnerable have food, shelter and incomes; yet others will demand greater effort to harness and govern technology.

As with COVID-19, climate change impacts are likely to play out disproportionately across countries, exacerbated by long-existing inequalities. There is only a short window to redress these disparities. A shift towards greener production and consumption cannot be delayed until economies are revived. Governments—individually and in coordination—need to catalyse a transformation that amalgamates investment in green and inclusive economic recovery, with short-term measures to bridge gaps in health, education, employment prospects and social safety nets. A fractured future can be avoided by bridging these gaps and enabling opportunities for everyone.