5 risks you probably never thought about

While the COVID-19 pandemic hit the whole world, it was not a great equalizer. In the past year, two worlds emerged: one enduring the pandemic with relative resilience based largely on successful vaccine development and rollout programs, the other hampered by low rates of vaccination and low levels of digital investment, facing decades of agonizingly slow recovery.

Drawing on the responses of nearly 1,000 survey respondents from diverse geographies and expertise, the 2022 Global Risks Perception Survey (GRPS) identifies the key risks arising from this divergent recovery. But the resulting Global Risks Report, which the Zurich Insurance Group (Zurich) is a strategic partner of, along with Marsh McLennan and the SK Group, outlines a few less obvious threats that many people might never have thought of. These include:

1. Space debris could kill your digital connectivity

While the early years of space activity was conducted or funded by the public sector, the last decade has seen growing private investment. As a result, space is getting increasingly crowded and there is a lack of updated international rules and governance around the use of space.

Approximately 11,000 satellites have been launched since Sputnik 1 in 1957, but 70,000 more, could enter orbit in the coming decades and remain in space for hundreds of years. Accelerated space activity has increased the risk of collisions that could impact the orbits of satellites that host key systems on Earth, damage valuable space equipment, or spark international tensions as space becomes militarized and weaponized.

This could lead to the “Kessler Scenario” where the density of objects (satellites and debris) in orbit is high enough that collisions result in an exponential growth of debris. According to NASA, there are millions of pieces of debris, including about 23,000 pieces of larger than a softball orbiting Earth. This could make space activities and the use of satellites in specific orbital ranges difficult for many generations. These risks have serious consequences on Earth, including internet connectivity and all that relies on it; precision weapons and military early-warning systems; and highly accurate timing services crucial to communication systems, electrical power grids and financial networks.

More than three-quarters (76%) of GRPS respondents characterized the current state of international risk mitigation efforts in space as either “not started” or in “early development”. The only significant agreement to date is the Outer Space Treaty from 1967, governed through the UN Office for Outer Space Affairs (UNOOSA). New governance is needed to address activities including satellite launches and servicing, space traffic control and common enforcement principles.

On top of these debris and crowding risks, infrastructure in space is exposed to events well out of human control. Strong solar winds or geomagnetic storms could also severely disrupt critical systems and create a ripple effect of disruption across the planet.

2. An unravelling social fabric

Of all the threats pointed out in the report, erosion of social cohesion was perceived to have worsened the most since the start of the pandemic.

The World Bank expects that in 2021 the richest 20 percent of the world’s population will have recovered half of their 2020 losses, while the poorest 20 percent are expected to lose a further 5 percent of their income. By 2030, 51 million more people are projected to live in extreme poverty compared to the pre-pandemic trend.

This widening wealth gap within economies is also set to reinforce tensions. But it’s not all about economic wellbeing, the COVID-19 pandemic has also widened other existing divides relating to issues of ethnicity, race and gender. Many countries have seen clashes over government responses to the health crisis, vaccine mandates and racial justice.

The past year also saw a marked jump in reported cases of mental illness, with the survey singling out the deterioration of mental health as one of the five global risks that have deteriorated the most through the crisis. No fewer than 53 million new cases of major depression were noted globally during the pandemic. An increase of 27 percent from pre-pandemic levels, with most of the increase in younger people and women.

This fray in the fabric of society could make it difficult for governments to focus on long-term policies designed to put a country back on its feet. At the very least, it will divert focus away from critical global issues such as climate change.

3. It’s hard to find a safe place to live

Due to economic hardship, conflict and political instability, both involuntary and economic migration have been on the up for the past two years. In 2020, there were more than 34 million people forcibly displaced abroad globally due to persecution, conflict, violence and human rights violations – a historic high.

But in destination countries, governments – reflecting popular attitudes – have expressed concern about pressures on housing capacity, education or healthcare services, and local employment. These views, often trumpeted by nationalist and populist groups, are leaving migrants stateless and contributing to growing international friction.

According to a survey led by IPSOS and the World Economic Forum in April 2021, positive views of globalization fell by an average of 10 percentage points across 25 countries. Aside from the risk of fueling humanitarian crises, this could have a negative impact on both origin and destination countries in the future.

Economic migration often has considerable benefits for both origin and destination countries. It is “the most effective way to reduce poverty and share prosperity,” according to a World Bank report. Migrants could play a vital role in bridging the gap between labor supply and demand, avoiding for example, the lack of truck drivers that stalled the movement of goods in some Western countries in 2021. Migrant workers also benefit origin countries through remittances to family members, which supports private consumption, savings and investment.

Hard borders risk stunting the economic recovery in destination countries and inhibiting social mobility in poorer countries. At a time of global divergence, migration offers opportunities in terms of jobs and livelihoods, but also risks for host, corridor, and origin countries, such as security concerns, geopolitical challenges and the safety and the human rights of migrants themselves.

4. Not so-soft imperialism makes a comeback

Competition between the U.S. and China is increasing. Countries such as Russia and Turkey are also eager to project power abroad through new channels, such as cyberspace and digital technology, where the risks are all too obvious. Cyberattacks were already playing a significant role in the escalation of geopolitical tensions, and the digitalization of the world will likely only exacerbate this trend.

GRPS respondents identified “geoeconomic confrontations” as a critical medium- and long-term threat to the world, and potentially the most severe geopolitical risk for the next decade. Vaccine diplomacy, along with financing, has enabled China to expand its influence in the developing world, with Brazil, Indonesia, Mexico and Turkey being major purchasers of Sinovax, the Chinese COVID-19 vaccine. Regions struggling to recover from the pandemic are increasingly reliant on financial, technological and scientific support from China and net debt payments to China rose by 62 percent in 2020.

Competition is intensifying in new frontiers, as evident in the militarization and weaponization of space and impacting geoeconomic relations too. Both India and Japan put protectionist policies in place during the pandemic and Western companies in sensitive sectors such as technology are encountering increasing difficulties in doing business in China and Russia.

The world continues to be an uncertain place with widening geopolitical fractures. Soft and hard barriers are increasing at a time when we all need to work together to tackle common global challenges, most notably, in the long-term, climate change.

5. Can I afford to heat my home?

Inflation has accelerated in many countries as a result of pandemic-related disruptions to supply chains combined with resurgent consumer demand and higher commodity prices. This will dampen consumer sentiment – which has been fundamental for economic recovery – and will increase risks from central bank interest rate rises.

In advanced and developing economies alike, higher prices and more expensive debt would impact lower-income households especially hard, while small and medium-sized enterprises (SMEs) that are still trying to avoid bankruptcy would suffer from weakening consumption.

The previous edition of the GRPS identified “commodity shocks”, “price instability” and “debt crises” as critical medium-term concerns. These are already emerging to some extent as commodity prices have increased nearly 30 percent since end of 2020 and they could remain volatile because of growing tensions between Europe and Russia, China’s energy shortage, continued supply chain disruptions and transition challenges from disinvestment in fossil fuel reserves.

One of the important long-term consequences of the pandemic, is the effect it will have on the world’s ability to address the important global environmental challenges, reducing the attention and focus needed for governments to take effective and quick climate action. It’s hard to see how any transition of this scale can be anything but disruptive and disorderly.

It is economic drivers, like an expectation of a rapidly increasing carbon price, that are likely to have the greatest impacts on consumers and businesses but are at the same time politically the most challenging. Although every industrial revolution has destroyed business and sectors that failed to adapt, they have also created opportunities for the ones embracing the change.