Davos 2023: WEF says cost-of-living crisis near-term concern, climate crises can bother for long

The year 2022 saw many changes in the world order. Countries across the world, which were already struggling to recover from Covid-19, were left with a series of deeply interconnected global risks.  The World Economic Forum (WEF) in its Global Risks Report 2023 noted that the war between Russia and Ukraine, rising inflation, and food and energy crises due to the economic impact of lockdowns are the biggest challenges for this year.  

The international organisation noted that the struggles were mainly around energy and food supply crunches, which are likely to persist for the next two years. The increase in energy and food prices has pushed the cost of living and debt servicing.  

The report, which has been produced in partnership with Marsh McLennan and Zurich Insurance Group, also noted that the climate crises and lack of climate mitigation and climate adaptation are the long-term challenges the countries will be facing. Failure to mitigate and adapt to climate change, which may increase the intensity of natural disasters, biodiversity loss, and environmental degradation can be extremely dangerous as the environment is already fragile.  

The global agency also summed up the global risks landscape and listed the top risks over the short and long term. 

Risks for 2 years	Risks for 10 years
Cost-of-living crisis	Failure to mitigate climate change
Natural disasters and extreme weather conditions	Failure of climate change adaptation
Geoeconomic confrontation	Natural disasters and extreme weather conditions
Failure to mitigate climate change	Biodiversity loss and ecosystem collapse
Erosion of social cohesion and societal polarization	Large-scale involuntary migration
Large-scale environmental damage incidents	Natural resource crises
Failure of climate change adaptation	Erosion of social cohesion and societal polarization
Widespread cybercrime and cyber insecurity	Widespread cybercrime and cyber insecurity
Natural resource crises	Geoeconomic confrontation
Large-scale involuntary migration	Large-scale environmental damage incidents

Near-term crises vs Long-term crises 

The report noted that the economic aftereffect of the global pandemic and war in Russia and Ukraine led to skyrocketing inflation, which started a new phase of low growth and low investment. This along with the energy, food, and security crises is making the entire situation tricky.  

Like, the Russia-Ukraine invasion e created the greatest energy price shock since the 1970s. The share of GDP spent on energy in OECD countries jumped from 8.9 per cent in January 2022 to 17.7 per cent in December. 

Similarly, food prices also increased. Russia and Ukraine together account for almost 30 per cent of global wheat exports and play a key role in the supply of fertiliser. The blockade of seaports and the destruction of croplands exacerbated a pre-existing global food crisis in which 345 million people in 82 countries are facing acute food insecurity. 

 The report said that these would further create follow-on or future risks that will dominate the next two years. These can be in the form of recession, growing debt distress, a continued cost of living crisis, polarized societies enabled by disinformation and misinformation, a hiatus on rapid climate action, and zero-sum geo-economic warfare. 

“The short-term risk landscape is dominated by energy, food, debt, and disasters. 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 alike. In this already toxic mix of known and rising global risks, a new shock event, from a new military conflict to a new virus, could become unmanageable. Climate and human development therefore must be at the core of concerns of global leaders to boost resilience against future shocks,” said Saadia Zahidi, Managing Director, World Economic Forum. 

Climate crises 

The report also noted that the climate crisis also continued, with extreme weather causing catastrophic floods, droughts, and wildfires that left millions homeless across the globe – 6.5 million people fled their homes in Pakistan alone at the height of floods in September. A report by the charity Christian Aid estimated that the 10 costliest climate-related disasters in 2022 each caused more than $3 billion of damage, with the impact falling disproportionately on the least wealthy nations. 

“The interplay between climate change impacts, biodiversity loss, food security, and natural resource consumption is a dangerous cocktail. Without significant policy change or investments, this mix will accelerate ecosystem collapse, threaten food supplies, amplify the impacts of natural disasters and limit further climate mitigation progress. If we speed up the action, there is still an opportunity by the end of the decade to achieve a 1.5 degrees Celsius trajectory and address the nature emergency,” said John Scott, Head of Sustainability Risk, Zurich Insurance Group.