Today's unaddressed risks could become tomorrow’s crises, warns Forum

The unparalleled events of the past year have revealed a fundamental need to change thinking on global risks and how they are managed, claimed the World Economic Forum today as it released its annual Global Risks Report.

With unprecedented levels of interconnectedness between all areas of risk, the report stressed that the need to combat governance gaps globally is greater than ever. It argued for an overhaul of current values and behaviours to improve coordination and supervision.

“The financial crisis and the ensuing recession have created a more vulnerable environment where unaddressed risks may become tomorrow’s crises,” said Robert Greenhill, managing director and Chief Business Officer at the World Economic Forum.

Fiscal crisis

The research highlighted the impact of the fiscal crisis and the social and political implications of high unemployment rates in several major economies as key concerns. The current models for health, education and unemployment protection have been put under severe strain, said the Forum.

Daniel Hofmann, group chief economist of Zurich Financial Services, a partner in the research, said: “In reaction to the financial crisis, many countries have put themselves at risk of overextending their fiscal positions and being burdened with extremely high levels of debt. This could put upward pressure on real interest rates, rein back growth and lead to protracted high levels of unemployment.”

Infrastructure under-investment

More widely, the report pointed to the impact of the global recession on longstanding under-investment in infrastructure, especially in energy and agriculture, and the rising costs of treating chronic disease. These “creeping” risks have not appeared overnight, but the recession has limited the ability of decision-makers to combat them effectively.

“The fragile global economy will make itself more susceptible to oil price-related shocks if this underinvestment continues,” said John Drzik, CEO of Oliver Wyman, part of the MMC group, which also partnered with the Forum.

A massive US$35 trillion of infrastructure investment is required over the next 20 years, according to the World Bank. “This is particularly acute for agriculture and food security,” said Swiss Re’s Chief Risk Officer Raj Singh. “We need a vast increase in food production to feed the growing world population, and a billion people are already undernourished. Billions of dollars need to be spent on water provision, energy supply, transport and climate change adaptation measures.”

The report also highlighted risks where levels of awareness and preparedness are currently very low; these include transnational crime and corruption, cyber-vulnerability and biodiversity loss.

Sheana Tambourgi, editor of the report and Director and Head of the Global Risk Network at the World Economic Forum, warned, “The next few months will put the willingness among global decision-makers to cooperate on addressing global risks to the test. Simply reverting to ‘business as usual’ could have serious implications in the long term in several risk areas.”

The Global Risks report is published in partnership with Citigroup, Marsh & McLennan Companies (MMC), Swiss Re, the Wharton School Risk Center and Zurich Financial Services.

Read StrategicRISK's analysis of the global risks landscape in 2010: Charting disaster

Download the full report by clicking the link on the right of this page or visiting The World Economic Forum website

Global Risks 2010 - Sheana Tambourgi