What’s At Risk: An 18-Month View of a Post-COVID World
As the world continues to grapple with the effects of COVID-19, no part of society seems to be left unscathed. Fears are surmounting around the economy’s health, and dramatic changes in life as we know it are also underway.
In today’s graphic, we use data from a World Economic Forum survey of 347 risk analysts on how they rank the likelihood of major risks we face in the aftermath of the pandemic.
What are the most likely risks for the world over the next year and a half?
The Most Likely Risks
In the report, a “risk” is defined as an uncertain event or condition with the potential for significant negative impacts on various countries and industries. The 31 risks have been grouped into five major categories:
- Economic: 10 risks
- Societal: 9 risks
- Geopolitical: 6 risks
- Technological: 4 risks
- Environmental: 2 risks
Among these, risk analysts rank economic factors high on their list, but the far-reaching impacts of the remaining factors are not to be overlooked either. Let’s dive deeper into each category.
The survey reveals that economic fallout poses the most likely threat in the near future, dominating four of the top five risks overall. With job losses felt the world over, a prolonged recession has 68.6% of experts feeling worried.
|#1||Prolonged recession of the global economy||68.6%|
|#2||Surge in bankruptcies (big firms and SMEs) and a wave of industry consolidation||56.8%|
|#3||Failure of industries or sectors in certain countries to properly recover||55.9%|
|#4||High levels of structural unemployment (especially youth)||49.3%|
|#6||Weakening of fiscal positions in major economies||45.8%|
|#7||Protracted disruption of global supply chains||42.1%|
|#8||Economic collapse of an emerging market or developing economy||38.0%|
|#16||Sharp increase in inflation globally||20.2%|
|#20||Massive capital outflows and slowdown in foreign direct investment||17.9%|
|#21||Sharp underfunding of retirement due to pension fund devaluation||17.6%|
The pandemic has accelerated structural change in the global economic system, but this does not come without consequences. As central banks offer trillions of dollars worth in response packages and policies, this may inadvertently burden countries with even more debt.
Another concern is that COVID-19 is now hitting developing economies hard, critically stalling the progress they’ve been making on the world stage. For this reason, 38% of the survey respondents anticipate this may cause these markets to collapse.
High on everyone’s mind is also the possibility of another COVID-19 outbreak, despite global efforts to flatten the curve of infections.
|#10||Another global outbreak of COVID-19 or different infectious disease||30.8%|
|#13||Governmental retention of emergency powers and/or erosion of civil liberties||23.3%|
|#14||Exacerbation of mental health issues||21.9%|
|#15||Fresh surge in inequality and social divisions||21.3%|
|#18||Anger with political leaders and distrust of government||18.4%|
|#23||Weakened capacity or collapse of national social security systems||16.4%|
|#24||Healthcare becomes prohibitively expensive or ineffective||14.7%|
|#26||Failure of education and training systems to adapt to a protracted crisis||12.1%|
|#30||Spike in anti-business sentiment||3.2%|
With many countries moving to reopen, a few more intertwined risks come into play. 21.3% of analysts believe social inequality will be worsened, while 16.4% predict that national social safety nets could be under pressure.
Further restrictions on trade and travel movements are an alarm bell for 48.7% of risk analysts—these relationships were already fraught to begin with.
|#5||Tighter restrictions on the cross-border movement of people and goods||48.7%|
|#12||Exploitation of COVID-19 crisis for geopolitical advantage||24.2%|
|#17||Humanitarian crises exacerbated by reduction in foreign aid||19.6%|
|#22||Nationalization of strategic industries in certain countries||17.0%|
|#27||Failure to support and invest in multilateral organizations for global crisis response||7.8%|
|#31||Exacerbation of long-standing military conflicts||2.3%|
In fact, global trade could drop sharply by 13-32% while foreign direct investment (FDI) is projected to decline by an additional 30-40% in 2020.
The drop in foreign aid could also put even more stress on existing humanitarian issues, such as food insecurity in conflict-ridden parts of the world.
Technology has enabled a significant number of people to cope with the impact and spread of COVID-19. An increased dependence on digital tools has enabled wide-scale remote working for business—but for many more without this option, this accelerated adoption has hindered rather than helped.
|#9||Cyberattacks and data fraud due to sustained shift in working patterns||37.8%|
|#11||Additional unemployment from accelerated workforce automation||24.8%|
|#25||Abrupt adoption and regulation of technologies (e.g. e-voting, telemedicine, surveillance)||13.8%|
|#28||Breakdown of IT infrastructure and networks||6.9%|
Over a third of the surveyed risk analysts see the emergence of cyberattacks due to remote working as a rising concern. Another near 25% see the threat of rapid automation as a drawback, especially for those in occupations that do not allow for remote work.
Last but certainly not least, COVID-19 is also potentially halting progress on climate action. While there were initial drops in pollution and emissions due to lockdown, some estimate there could be a severe bounce-back effect on the environment as economies reboot.
|#19||Higher risk of failing to invest enough in climate resilience and adaptation||18.2%|
|#29||Sharp erosion of global decarbonization efforts||4.6%|
As a result of the more immediate concerns, sustainability may take a back seat. But with environmental issues considered the biggest global risk this year, these delayed investments and missed climate targets could put the Earth further behind on action.
Which Risks Are of the Greatest Concern?
The risk analysts were also asked which of these risks they considered to be of the greatest concern for the world. The responses to this metric varied, with societal and geopolitical factors taking on more importance.
In particular, concerns around another disease outbreak weighed highly at 40.1%, and tighter cross-border movement came in at 34%.
On the bright side, many experts are also looking to this recovery trajectory as an opportunity for a “great reset” of our global systems.
This is a virus that doesn’t respect borders: it crosses borders. And as long as it is in full strength in any part of the world, it’s affecting everybody else. So it requires global cooperation to deal with it.
——Gita Gopinath, IMF Chief Economist
Which Asian Economies Have the Most Sustainable Trade Policies?
The Sustainable Trade Index ranks 19 Asian economies and the U.S. across three categories of trade sustainability.
Which Asian Economies Have the Most Sustainable Trade Policies?
To say that Asia has benefited from international trade is an understatement. By opening its economies to the rest of the world, the region has become a leading exporter in many of today’s most important industries.
Trade has also improved Asia’s quality of life, lifting over one billion people out of poverty since 1990. Without the proper controls, however, such rapid growth could have harmful effects on Asia’s environment and society.
In this infographic from The Hinrich Foundation, we break down the results of their 2020 Sustainable Trade Index (STI). Since 2016, this index has ranked 19 Asian economies and the U.S. across three categories of trade sustainability: economic, social, and environmental.
What Exactly is Sustainable Trade?
International trade is an important source of economic growth, enabling domestic businesses to expand, reach new customers, and gain exposure to foreign markets.
At the same time, countries that focus too heavily on exports put themselves at greater long-term risk. For example, an aggressive expansion into manufacturing is likely to impair the quality of a country’s air, while overdependence on a single product or sector can create an economy that is susceptible to demand shocks.
“The primary principle which underpins sustainable trade is balance. Trade cannot be pursued solely for economic gains, without considering environmental and social outcomes.”
– Merle A. Hinrich
Thus, sustainable trade supports not only economic growth, but also environmental protection and strengthened social capital. It involves finding a balance between short-term incentives and long-term resilience.
Measuring Sustainable Trade
The Sustainable Trade Index (STI) is based on three underlying pillars of trade sustainability. Every economy in the STI receives a score between 0 and 100 for each pillar.
|Pillar||Number of Indicators||Examples of Indicators|
The economic pillar measures a country’s ability to to grow its economy through trade, while the social pillar measures a population’s tolerance for trade expansion, given the costs and benefits of economic growth.
Last but not least, the environmental pillar measures a country’s proficiency at managing climate-related risks. Individual pillar scores are then aggregated to arrive at an overall ranking, which also has a maximum possible score of 100.
The Sustainable Trade Index 2020: Overall Rankings
For the first time in the STI’s history, Japan and South Korea have tied for first place. Both countries have placed in the top five previously, but 2020 marks the first time for either to take the top spot.
|1 (tied)||🇯🇵 Japan||75.1|
|1 (tied)||🇰🇷 South Korea||75.1|
|4||🇭🇰 Hong Kong||68.3|
|10||🇱🇰 Sri Lanka||50.4|
|15 (tied)||🇮🇳 India||46.9|
|15 (tied)||🇻🇳 Vietnam||46.9|
Advanced economies like Singapore, Hong Kong, and Taiwan were also strong performers, each scoring in the high 60s. At the other end of the spectrum, developing countries such as India and Vietnam were tightly packed within the 40 to 50 range.
To learn more, here’s how each country performed in the three underlying pillars.
1. Economic Pillar Rankings
Hong Kong topped the economic pillar for the first time thanks to its low trade costs and well-developed financial sector. Financial services have increased their contribution to Hong Kong’s GDP from 13% in 2004 to 20% in 2018.
The region’s recently initiated national security law—which has resulted in greater political instability—may have a negative effect on future rankings.
|1||🇭🇰 Hong Kong||69.6|
|4||🇰🇷 South Korea||63.3|
|5 (tied)||🇲🇾 Malaysia||61.2|
|5 (tied)||🇺🇸 U.S.||61.2|
|9 (tied)||🇯🇵 Japan||58.6|
|9 (tied)||🇵🇭 Philippines||58.6|
|13||🇱🇰 Sri Lanka||54.7|
China was also a strong performer, climbing to third for the first time. Asia’s largest economy benefits from a well-diversified group of trading partners, meaning it doesn’t rely too heavily on a single market.
The bottom five countries—India (16th), Myanmar (17th), Thailand (18th), Pakistan (19th) and Laos (20th)—suffered from issues such as payment risk, which is measured as the difficulty of getting money in and out of a country. This risk is especially damaging to trade because it discourages foreign direct investment.
2. Social Pillar Rankings
The social pillar features the highest average score, but also the largest gap from top to bottom. This gap has expanded over recent years, growing from 43.9 points in 2018 to 52.3 in 2020.
|3||🇰🇷 South Korea||86.9|
|8||🇭🇰 Hong Kong||57.8|
|18||🇱🇰 Sri Lanka||46.1|
Taiwan claimed the top spot for the second time, solidifying its reputation as Asia’s leader in human capital development. It performed well in the educational attainment indicator, with 93.6% of its population receiving a tertiary education.
China, despite its success in other pillars, only managed 16th. This was partly due to the effects of its now defunct one-child policy, which has been responsible for creating gender imbalances and a shrinking population.
3. Environmental Pillar Rankings
The environmental pillar has the lowest average score of the three. Japan, Singapore, Hong Kong, and South Korea were the only countries to score above 75.
|3||🇭🇰 Hong Kong||77.4|
|4||🇰🇷 South Korea||75.2|
|8||🇱🇰 Sri Lanka||50.4|
The top four performed well in areas such as air quality and water pollution, and with the exception of Hong Kong, have all introduced carbon pricing schemes in the past decade. This doesn’t mean these countries are without their flaws, however.
Land-constrained Singapore, for instance, ranked 16th in the deforestation indicator. The city-state is one of the densest population centers in the world, and has cut down forests to clear space for further settlement and urbanization.
Building Back Better From COVID-19
Despite the damage that COVID-19 has caused, there are some silver linings. This includes the environmental benefits experienced by China, where lockdowns reduced carbon emissions by 200 million tonnes in a single month. It’s been estimated that after two months, China’s reduced pollution levels saved the lives of 77,000 people.
These temporary improvements are an explicit reminder of the environmental and social costs associated with economic growth. In response, governments in Asia are taking steps to ensure the long-term sustainability of their nations. Japan and South Korea both announced their commitments to achieving carbon neutrality by 2050, while China set a similar goal for 2060.
Mapping the World’s Key Maritime Choke Points
Ocean shipping is the primary mode of international trade. This map identifies maritime choke points that pose a risk to this complex logistic network.
Mapping the World’s Key Maritime Choke Points
Maritime transport is an essential part of international trade—approximately 80% of global merchandise is shipped via sea.
Because of its importance, commercial shipping relies on strategic trade routes to move goods efficiently. These waterways are used by thousands of vessels a year—but it’s not always smooth sailing. In fact, there are certain points along these routes that pose a risk to the whole system.
Here’s a look at the world’s most vulnerable maritime bottlenecks—also known as choke points—as identified by GIS.
What’s a Choke Point?
Choke points are strategic, narrow passages that connect two larger areas to one another. When it comes to maritime trade, these are typically straits or canals that see high volumes of traffic because of their optimal location.
Despite their convenience, these vital points pose several risks:
- Structural risks: As demonstrated in the recent Suez Canal blockage, ships can crash along the shore of a canal if the passage is too narrow, causing traffic jams that can last for days.
- Geopolitical risks: Because of their high traffic, choke points are particularly vulnerable to blockades or deliberate disruptions during times of political unrest.
The type and degree of risk varies, depending on location. Here’s a look at some of the biggest threats, at eight of the world’s major choke points.
Because of their high risk, alternatives for some of these key routes have been proposed in the past—for instance, in 2013 Nicaraguan Congress approved a $40 billion dollar project proposal to build a canal that was meant to rival the Panama Canal.
As of today, it has yet to materialize.
A Closer Look: Key Maritime Choke Points
Despite their vulnerabilities, these choke points remain critical waterways that facilitate international trade. Below, we dive into a few of the key areas to provide some context on just how important they are to global trade.
The Panama Canal
The Panama Canal is a lock-type canal that provides a shortcut for ships traveling between the Pacific and Atlantic oceans. Ships sailing between the east and west coasts of the U.S. save over 8,000 nautical miles by using the canal—which roughly shortens their trip by 21 days.
In 2019, 252 million long tons of goods were transported through the Panama Canal, which generated over $2.6 billion in tolls.
The Suez Canal
The Suez Canal is an Egyptian waterway that connects Europe to Asia. Without this route, ships would need to sail around Africa, which would add approximately seven days to their trips. In 2019, nearly 19,000 vessels, and 1 billion tons of cargo, traveled through the Suez Canal.
In an effort to mitigate risk, the Egyptian government embarked on a major expansion project for the canal back in 2015. But, given the recent blockage caused by a Taiwanese container ship, it’s clear that the waterway is still vulnerable to obstruction.
The Strait of Malacca
At its smallest point, the Strait of Malacca is approximately 1.5 nautical miles, making it one of the world’s narrowest choke points. Despite its size, it’s one of Asia’s most critical waterways, since it provides a critical connection between China, India, and Southeast Asia. This choke point creates a risky situation for the 130,000 or so ships that visit the Port of Singapore each year.
The area is also known to have problems with piracy—in 2019, there were 30 piracy incidents, according to private information group ReCAAP ISC.
The Strait of Hormuz
Controlled by Iran, the Strait of Hormuz links the Persian Gulf to the Gulf of Oman, ultimately draining into the Arabian Sea. It’s a primary vein for the world’s oil supply, transporting approximately 21 million barrels per day.
Historically, it’s also been a site of regional conflict. For instance, tankers and commercial ships were attacked in that area during the Iran-Iraq war in the 1980s.
The Bab el-Mandeb Strait
The Bab el-Mandeb Strait is another primary waterway for the world’s oil and natural gas. Nestled between Africa and the Middle East, the critical route connects the Mediterranean Sea (via the Suez Canal) to the Indian Ocean.
Like the Strait of Malacca, it’s well known as a high-risk area for pirate attacks. In May 2020, a UK chemical tanker was attacked off the coast of Yemen–the ninth pirate attack in the area that year.
Due to the strategic nature of the region, there is a strong military presence in nearby Djibouti, including China’s first ever foreign military base.
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