Cost-of-living crisis to remain biggest risk for next two years: Davos study

The cost–of–living crisis is the biggest global risk over the next two years, the World Economic Forum warned Wednesday in a survey preceding its annual Davos meetings of global elites.

The WEF report described the cost–of–living crisis as the “biggest short-term risk” between now and 2025, followed by natural disasters, extreme weather events and “geo-economic confrontation”.

Global inflation remains at sky-high levels after energy and food costs rocketed last year, largely owing to the invasion of agricultural powerhouse Ukraine by major oil and gas producer Russia.

Supply constraints caused by the Covid pandemic have also contributed to decades-high prices for consumers.

“Conflict and geo-economic tensions have triggered a series of deeply interconnected global risks,” said the annual study ahead of next week’s gathering in the Swiss Alpine village of Davos.

“These include energy and food supply crunches, which are likely to persist for the next two years, and strong increases in the cost-of-living and debt servicing,” it added.

The report said such “crises risk undermining efforts to tackle longer-term risks, notably those related to climate change, biodiversity and investment in human capital”.

The survey, produced with the consulting firm Marsh McLennan and Zurich Insurance Group, took into account the views of more than 1,200 global risk experts, policymakers and industry leaders.

“The short-term risk landscape is dominated by energy, food, debt and disasters,” said Saadia Zahidi, a managing director at WEF.

“Those that are already the most vulnerable are suffering — and in the face of multiple crises, those who qualify as vulnerable are rapidly expanding, in rich and poor countries,” she wrote in the report.

At a London press conference on Wednesday, Zahidi highlighted the fact that respondents to the survey were placing traditional warfare as less of a risk than geo-economic conflict – such as sanctions, punitive tariffs and other forms of trade war – or cyber warfare.

“The nature of how conflict happens is changing,” she said.

“That doesn’t mean that we shouldn’t be concerned, because for the first time in a fairly long time, military spending has seen a small but pronounced uptake in many large economies.”

The WEF study called on leaders to act “collectively and decisively, balancing short- and long-term views”.

And it concluded on the need for cooperation to strengthen “financial stability, technology governance, economic development and investment in research, science, education and health”.

Carolina Klint, a risk management leader at Marsh, said this year would be marked by “increased risks” related to food, energy, raw materials and cyber security that could further disrupt global supply chains and impact investment decisions.

“At a time when countries and organisations should be stepping up resilience efforts, economic headwinds will constrain their ability to do so,” she wrote in the report.

Many analysts warn that the global economy will suffer a recession in 2023 as inflation remains elevated.