Economic distress and social discontent could increase around the world in the next 18 months unless leaders, policymakers and businesses work together to address problems created by the Covid-19 pandemic, according to the World Economic Forum.
A survey by the organisation of 350 of the world’s leading risk professionals highlighted the issues caused by the pandemic, with a prolonged global recession the main concern, according to 68.6 per cent of respondents.
Economic fears dominated, with 56.8 per cent citing a surge in bankruptcies as the main risk after Covid-19. The failure of entire industries or sectors in certain countries was referred to by 55.9 per cent of risk professionals.
The response to Covid-19 "required trillions of dollars" in support that is likely to cause structural shifts in the global economy, the report said.
Governments have poured in close to $8 trillion in economic support to counter the fallout from the coronavirus pandemic.
Public debt in the G20 economies had reached a high of 90 per cent of gross domestic product in 2019, meaning many countries already had little room for manoeuvre.
“A build-up of debt is likely to burden government budgets and corporate balances for many years, global economic relations could be reshaped, emerging economies are at risk of submerging into a deeper crisis, while businesses could face increasingly adverse consumption, production and competition patterns,” the report said.
A widening of the wealth gap between young and old, and the significant educational and employment challenges posed risk "another lost generation”, Peter Giger, group chief risk officer of Zurich Insurance, said at the report’s online launch on Tuesday.
“Social disruptions will be felt by people worldwide, hitting the poorest parts of our societies disproportionally,” Mr Giger said.
The report highlighted the International Monetary Fund’s forecast of a 3 per cent contraction in global GDP this year, the World Trade Organisation’s estimate of global trade shrinking 13to 23 per cent and the United Nations’ Conference on Trade and Development’s prediction that foreign direct investment will fall by 30 to 40 per cent.
The pandemic adds a risk of countries “turning in” on themselves, said Ngaire Woods, dean of the University of Oxford’s Blavatnik School of Government.
“When people can’t physically travel, the risk that politicians use the crisis and the fear and anxiety caused by it to pursue a kind of xenophobic nationalism is present in every continent of the world,” she said, adding that such moves increase the risk of international conflict.
“With a public health crisis and an economic crisis, the world does not also need a security and conflict crisis. No government in the world can afford that at the moment,” Ms Woods said.
She said that after a decade of monetary easing, governments are set to become "investors of last resort", which could lead to them setting new standards for corporate behaviour.
Companies are “on the hook to adapt and innovate at great speed at a time of considerable uncertainty and great stress, as well as weaker finances,” said Richard Smith-Bingham, executive director of consultancy Marsh and McLennan Advantage. “Refashioning supply chains is hard work even at the best of times, even more so during a protracted crisis.”
He said that by probing the risks from the pandemic now, the WEF report “should help us to work towards a new normal that we want and avoid blundering into a weaker version of what we had before”.
Global GDP could be 5.3 per cent lower than it would otherwise have been as a result of the pandemic, equating to a loss of about $26.8 trillion, according to a mid-range consensus of economists polled by the Centre for Risk Studies at the University of Cambridge Judge Business School.
Forecasts ranged from a $3.3tn loss, equivalent to 0.4 per cent of five-year GDP at the optimistic end of the scale, or an $82.4tn loss, or 16.3 per cent, at the pessimistic end.
The calculations “are not forecasts, but rather are projections based on various plausible scenarios that could unfold in the next five years related to the economic impact of Covid-19", said the centre’s chief scientist, Andrew Coburn.