World Economic Forum warns of growing array of global risks

German Klaus Schwab, founder and president of the World Economic Forum, WEF, speaks during a press conference in Cologny near Geneva, Switzerland, Wednesday, Jan. 13, 2016. (Salvatore Di Nolfi/Keystone via AP)

LONDON -- The global economy faces an array of risks, from natural disasters related to climate change to the rise of the Islamic State group and increasingly sophisticated cyberattacks, according to experts polled by the World Economic Forum, which organizes the annual gathering of political and business leaders in the Swiss resort of Davos.

In a bleak assessment published Thursday ahead of next week's meeting in Davos, the WEF said its survey found that a failure to deal with and prepare for climate change is potentially the most costly risk over the next ten years, ahead of weapons of mass destruction, water crises, large-scale migration flows and severe energy price shocks.

That's the first time that an environmental concern has topped the list of global risks of the WEF's Global Risks Report and comes after what meteorologists say was the hottest year on record.

"Climate change is exacerbating more risks than ever before in terms of water crises, food shortages, constrained economic growth, weaker social cohesion and increased security risks," said Cecilia Reyes, chief risk officer at Zurich Insurance, which helped develop the annual Global Risks Report.

The survey of almost 750 experts and decision-makers from a variety of fields, locations and ages was conducted in the autumn of 2015 before the global warming targets agreed on in Paris in December.

John Drzik, president of global risk at insurance broker Marsh, which also helped develop the report, conceded that climate change might not have topped the list if the poll had been conducted after the Paris Agreement. The deal saw nearly 200 countries agree to keep global temperatures from rising another degree Celsius (1.8 Fahrenheit) between now and 2100.

Drzik said the 2016 report, overall, has the "broadest array" of risks facing the global economy in the survey's history. However, he noted that the 2008 financial crisis, which saw the collapse of numerous banks and caused the deepest global recession since World War II, may have prompted more immediate damage from a purely economic point of view.

"Events such as Europe's refugee crisis and terrorist attacks have raised global political instability to its highest level since the Cold War," Drzik said.

A major concern identified by all involved in the report is the interconnectedness of all the risks.

"We know climate change is exacerbating other risks such as migration and security, but these are by no means the only interconnections that are rapidly evolving to impact societies, often in unpredictable ways," said Margareta Drzeniek-Hanouz, the WEF's head of global competitiveness and risks.

In its survey, the WEF found that large-scale involuntary migration -- not just in Europe but within regions, including the Middle East -- was the most likely risk to emerge, as opposed to the biggest in terms of potential impact.

With nearly 60 million involuntary migrants last year -- almost 50 per cent more than in 1940 -- participants at the report's launch in London warned about the potential for social unrest.

One potential effect of the refugee crisis is the call by many in Europe to restrict the freedom of movement of labour within the 28-country European Union, one of the symbols of the post-war unity push. The restrictions would harm growth and employment and potentially dent co-operation efforts in other fields.

Purely economic factors remained high on the list of concerns, too, including the scale of the slowdown in China, the world's number 2 economy, high unemployment levels in many countries, and the impact of low oil prices on the budgets of oil exporters.

Marsh's Drzik said the confluence of worrying economic signals, which has seen global stock markets suffer sharp losses so far in 2016, is "creating a very difficult environment to navigate for business."

Despite the worrying backdrop, all involved in the report sought to sound a note of optimism and stressed the opportunities that come with challenges. Dealing with climate change can stimulate technological innovation, for example.

"Let's not forget the risks and the rewards," said Zurich's Reyes. "They're two sides of the same coin."