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Visualized: A Global Risk Assessment of 2022 and Beyond

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2022 Global Risks Horizon

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Visualized: A Global Risk Assessment of 2022 and Beyond

Since the start of the global pandemic, we’ve been navigating through tumultuous waters, and this year is expected to be as unpredictable as ever.

In the latest annual edition of the Global Risks Report by the World Economic Forum (WEF), it was found that a majority of global leaders feel worried or concerned about the outlook of the world, and only 3.7% feel optimistic.

Ever year, the report identifies the top risks facing the world, as identified by nearly 1,000 surveyed experts and leaders across various disciplines, organizations, and geographies.

What global risks are leaders and experts most concerned about, and which ones are posing imminent threats? Let’s dive into the key findings from the report.

Methodology for WEF’s Global Risk Assessment

In the survey, respondents were asked to compare 37 different risks, which were broken down into five categories: economic, environmental, geopolitical, societal, and technological.

To get a sense of which risks were seen as more urgent than others, respondents were asked to identify when they believed these threats would become a serious problem to the world, based on the following timeframes:

  • Short-term threats: 0-2 years
  • Medium-term threats: 2-5 years
  • Long-term threats: 5-10 years

By categorizing global risks into these time horizons, it helps provide a better idea of the problems that decision makers and governments may have to deal with in the near future, and how these risks may interrelate with one another.

Short-Term Risks

When it comes to short-term threats, respondents identified societal risks such as “the erosion of social cohesion” and “livelihood crises” as the most immediate risks to the world.

TimeframeCategoryThreat% of Respondents
0-2 years🟢 EnvironmentalExtreme weather31.1%
0-2 years🔴 SocietalLivelihood crises30.4%
0-2 years🟢 EnvironmentalClimate action failure27.5%
0-2 years🔴 SocietalSocial cohesion erosion27.5%
0-2 years🔴 SocietalInfectious diseases26.4%
0-2 years🔴 SocietalMental health deterioration26.1%
0-2 years🟣 TechnologicalCybersecurity failure19.5%
0-2 years🔵 EconomicDebt crises19.3%
0-2 years🟣 TechnologicalDigital inequality18.2%
0-2 years🔵 EconomicAsset bubble burst14.2%

These societal risks have worsened since the start of COVID-19. And as emerging variants threaten our journey towards normalcy, the pandemic continues to wreak havoc worldwide, with no immediate signs of slowing down.

According to respondents, one problem triggered by the pandemic is rising inequality, both worldwide and within countries.

Many developed economies managed to adapt as office workers pivoted to remote and hybrid work, though many industries, such as hospitality, still face significant headwinds. Easy access to vaccines has helped these countries mitigate the worst effects of outbreaks.

Regions with low access to vaccines have not been so fortunate, and the economic divide could become more apparent as the pandemic stretches on.

Medium-Term Risks

A majority of respondents believe we’ll continue to struggle with pandemic-related issues for the next three years. Because of this, the medium-term risks identified by respondents are fairly similar to the short-term risks.

TimeframeCategoryThreat% of Respondents
2-5 years🟢 EnvironmentalClimate action failure35.7%
2-5 years🟢 EnvironmentalExtreme weather34.6%
2-5 years🔴 SocietalSocial cohesion erosion23.0%
2-5 years🔴 SocietalLivelihood crises20.1%
2-5 years🔵 EconomicDebt crises19.0%
2-5 years🟢 EnvironmentalHuman environmental damage16.4%
2-5 years🟡 GeopoliticalGeoeconomic confrontations14.8%
2-5 years🟣 TechnologicalCybersecurity failure14.6%
2-5 years🟢 EnvironmentalBiodiversity loss13.5%
2-5 years🔵 EconomicAsset bubble burst12.7%

The pressing issues caused by COVID-19 mean that many key governments and decision-makers are struggling to prioritize long-term planning, and no longer have the capacity to help out with global issues. For example, the UK government postponed its foreign aid target until at least 2024. If countries continue to prioritize themselves in an effort to mitigate the impact of COVID-19, the inequality gap could widen even further.

Respondents also worry about rising debt levels triggering a crisis. The debt-to-GDP ratio globally spiked by 13 percentage points in 2020, a figure that will almost certainly continue to rise in the near future.

Long-Term Risks

Respondents identified climate change as the biggest threat to humanity in the next decade.

TimeframeCategoryThreat% of Respondents
5-10 years🟢 EnvironmentalClimate action failure42.1%
5-10 years🟢 EnvironmentalExtreme weather32.4%
5-10 years🟢 EnvironmentalBiodiversity loss27.0%
5-10 years🟢 EnvironmentalNatural resource crises23.0%
5-10 years🟢 EnvironmentalHuman environmental damage21.7%
5-10 years🔴 SocietalSocial cohesion erosion19.1%
5-10 years🔴 SocietalInvoluntary migration15.0%
5-10 years🟣 TechnologicalAdverse tech advances14.9%
5-10 years🟡 GeopoliticalGeoeconomic confrontations14.1%
5-10 years🟡 GeopoliticalGeopolitical resource contestation13.5%

Climate inaction—essentially business as usual—could lead to a global GDP loss between 4% and 18%, with varying impacts across different regions.

Experts also pointed out that current decarbonization commitments made at COP26 last year still aren’t enough to slow warming to the 1.5°C goal set in the Paris Climate Agreement, so more action is needed to mitigate environmental risk.

That said, efforts to curb climate change and solve long-term issues will likely have negative short-term impacts on the global economy and society. So risk mitigation efforts need to be in place as we work to reach net-zero and ultimately slow down climate change.

Risk Mitigation Efforts

People’s thoughts on risk mitigation were gauged in the WEF survey. Respondents were asked to identify which risks our world is most equipped to handle, and which ones they believe we’re less prepared for.

Global Risk Mitigation Efforts

“Trade facilitation,” “international crime,” and “weapons of mass destruction” were risks that respondents felt we’ve effectively prepared for. On the flip side, “artificial intelligence” and “cross-border cyberattacks and misinformation” are areas where most respondents think we’re most unprotected against.

As society becomes increasingly reliant on digital infrastructure, experts predict we will see an uptick in cyber attacks and cybercrime. New AI-enabled technologies that offer ransomware-as-a-service allow anyone to engage in cybercrime—even those without the technical knowledge needed to build malware.

How Do We Move Forward?

Based on the findings from this year’s survey, WEF identified five lessons that governments, businesses, and decision-makers should utilize in order to build resilience and prepare for future challenges:

  1. Build a holistic mitigation framework: Rather than focusing on specific risks, it’s helpful to identify the big-picture worst-case scenario and work back from there. Build holistic systems that protect against adverse outcomes.
  2. Consider the entire ecosystem: Examine third-party services and external assets, and analyze the broader ecosystem in which you operate.
  3. Embrace diversity in resilience strategies: Not all strategies will work across the board. Complex problems will require nuanced efforts. Adaptability is key.
  4. Connect resilience efforts with other goals: Many resilience efforts could benefit multiple aspects of society. For instance, efficient supply chains could strengthen communities and contribute to environmental goals.
  5. Think of resilience as a journey, not a destination: Remaining agile and vigilant is vital when building out resilience programs, as these efforts are new and require reflection in order to improve.

The next few years will be riddled with complex challenges, and our best chance at mitigating these global risks is through increased collaboration and consistent reassessment.

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What History Reveals About Interest Rate Cuts

How have previous cycles of interest rate cuts in the U.S. impacted the economy and financial markets?

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Line chart showing the depth and duration of previous cycles of interest rate cuts.

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The following content is sponsored by New York Life Investments

What History Reveals About Interest Rate Cuts

The Federal Reserve has overseen seven cycles of interest rate cuts, averaging 26 months and 6.35 percentage points (ppts) each.

We’ve partnered with New York Life Investments to examine the impact of interest rate cut cycles on the economy and on the performance of financial assets in the U.S. to help keep investors informed. 

A Brief History of Interest Rate Cuts

Interest rates are a powerful tool that the central bank can use to spur economic activity. 

Typically, when the economy experiences a slowdown or a recession, the Federal Reserve will respond by cutting interest rates. As a result, each of the previous seven rate cut cycles—shown in the table below—occurred during or around U.S. recessions, according to data from the Federal Reserve. 

Interest Rate Cut CycleMagnitude (ppts)
July 2019–April 2020-2.4
July 2007–December 2008-5.1
November 2000–July 2003-5.5
May 1989–December 1992-6.9
August 1984–October 1986-5.8
July 1981–February 1983-10.5
July 1974–January 1977-8.3
Average-6.4

Source: Federal Reserve 07/03/2024

Understanding past economic and financial impacts of interest rate cuts can help investors prepare for future monetary policy changes.

The Economic Response: Inflation

During past cycles, data from the Federal Reserve, shows that, on average, the inflation rate continued to decline throughout (-3.4 percentage points), largely due to the lagged effects of a slower economy that normally precedes interest rate declines. 

CycleStart to end change (ppts)End to one year later (ppts)
July 2019–April 2020-1.5+3.8
July 2007–December 2008-2.3+2.6
November 2000–July 2003-1.3+0.9
May 1989–December 1992-2.5-0.2
August 1984–October 1986-2.8+3.1
July 1981–February 1983-7.3+1.1
July 1974–January 1977-6.3+1.6
Average-3.4+1.9

Source: Federal Reserve 07/03/2024. Based on the effective federal funds rate. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992, 1984-1986, 1981-1983, 1974-1977).

However, inflation played catch-up and rose by +1.9 percentage points one year after the final rate cut. With lower interest rates, consumers were incentivized to spend more and save less, which led to an uptick in the price of goods and services in six of the past seven cycles. 

The Economic Response: Real Consumer Spending Growth

Real consumer spending growth, as measured by the Bureau of Economic Analysis, typically reacted to rate cuts more quickly. 

On average, consumption growth rose slightly during the rate cut periods (+0.3 percentage points) and that increase accelerated one year later (+1.7 percentage points). 

CycleStart to end (ppts)End to one year later (ppts)
July 2019–April 2020-9.6+15.3
July 2007–December 2008-4.6+3.1
November 2000–July 2003+0.8-2.5
May 1989–December 1992+3.0-1.3
August 1984–October 1986+1.6-2.7
July 1981–February 1983+7.2-0.7
July 1974–January 1977+3.9+0.9
Average+0.3+1.7

Source: BEA 07/03/2024. Quarterly data. Consumer spending growth is based on the percent change from the preceding quarter in real personal consumption expenditures, seasonally adjusted at annual rates. Percent changes at annual rates were then used to calculate the change in growth over rate cut cycles. Data from the last full quarter before the date in question was used for calculations. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992, 1984-1986, 1981-1983, 1974-1977).

The COVID-19 pandemic and the Global Financial Crisis were outliers. Spending continued to fall during the rate cut cycles but picked up one year later.

The Investment Response: Stocks, Bonds, and Real Estate

Historically, the trend in financial asset performance differed between stocks, bonds, and real estate both during and after interest rate declines.

Stocks and real estate posted negative returns during the cutting phases, with stocks taking the bigger hit. Conversely, bonds, a traditional safe haven, gained ground. 

AssetDuring (%)1 Quarter After (%)2 Quarters After (%)4 Quarters After (%)
Stocks-6.0+18.2+19.4+23.9
Bonds+6.3+15.3+15.1+10.9
Real Estate-4.8+25.5+15.6+25.5

Source: Yahoo Finance, Federal Reserve, NAREIT 09/04/2024. The S&P 500 total return index was used to track performance of stocks. The ICE Corporate Bonds total return index was used to track the performance of bonds. The NAREIT All Equity REITs total return index was used to track the performance of real estate. Calculations are based on the previous four rate cut cycles (2019-2020, 2007-2008, 2000-2003, 1989-1992). It is not possible to invest directly in an index. Past performance is not indicative of future results. Index definitions can be found at the end of this piece.

However, in the quarters preceding the last rate cut, all three assets increased in value. One year later, real estate had the highest average performance, followed closely by stocks, with bonds coming in third.

What’s Next for Interest Rates

In March 2024, the Federal Reserve released its Summary of Economic Projections outlining its expectation that U.S. interest rates will fall steadily in 2024 and beyond.

YearRange (%)Median (%)
Current5.25-5.505.375
20244.50-4.754.625
20253.75-4.03.875
20263.00-3.253.125
Longer run2.50-2.752.625

Source: Federal Reserve 20/03/2024

Though the timing of interest rate cuts is uncertain, being armed with the knowledge of their impact on the economy and financial markets can provide valuable insight to investors. 

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