Cost-of-living crisis eclipses climate among global risks ahead of Davos

The cost-of-living crisis has been ranked as the most severe near-term challenge facing the globe, according to a report published on Wednesday ahead of the gathering of political and business leaders at the World Economic Forum (WEF) in Davos next week.

The 18th annual WEF Global Risks Report, based on a survey of 1,200 global risk experts, policymakers and industry leaders, also warned that efforts to tackle living costs and energy and food crunches over the near term “risk undermining” attempts to deal with longer-term problems, notably those related to climate change and biodiversity.

Environmental risks dominate threats facing the world over the next decade, according to respondents.

“The coming years will present tough trade-offs for governments facing competing concerns for society, the environment and security,” the report said.

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“Already, short-term geoeconomic risks are putting net-zero [carbon emission] commitments to the test and have exposed a gap between what is scientifically necessary and politically palatable.”

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The report highlighted that the first years of this decade have heralded a particularly disruptive period in human history. “The return to a ‘new normal’ following the Covid-19 pandemic was quickly disrupted by the outbreak of war in Ukraine, ushering in a fresh series of crises in food and energy – triggering problems that decades of progress had sought solve,” it said.

An international cost-of-living crisis, triggered as inflation soared in western economies in recent times to levels last seen in the 1980s, was identified as the main concern for respondents over the next two years.

Major central banks have hiked interest rates aggressively in the past year to try to rein in inflation, while many governments, including in the Republic, have responded with support measures to help households and businesses.

“Downside risks to the economic outlook also loom large,” the report said. “A miscalibration between monetary and fiscal policies will raise the likelihood of liquidity shocks, signalling a more prolonged economic downturn and debt distress on a global scale.”

Natural disasters and extreme weather events, geoeconomic confrontation, failure to mitigate climate change and erosion of social cohesion complete the list of the top five near-term risks identified in the report.

Looking out over the longer term, failure to mitigate climate change stands out as the number one threat facing the planet over the next decade, according to those surveyed. Environmental risks make up six of the top 10 concerns over the long term.

“Growing demand on public- and private-sector resources from other crises will reduce the speed and scale of mitigation efforts over the next two years,” the WEF said. “The report calls on leaders to act collectively and decisively, balancing short- and long-term views.”