A system-wide financial crisis, food insecurity, supply chain disruptions and climate and energy chaos are the four major global risks for the coming year according to a report released on 9 January by the World Economic Forum. The report “Global Risks 2008” comes two weeks before the yearly WEF meeting in Davos and highlights most of the challenges I recently mentioned in my predictions 2008 post.

The globalisation of the financial markets has brought a lot of advantages but has also created a system which might be prone to catastrophic financial instability, says the report. It recommends new thinking about risk management for the financial markets.

Food security has become the new emerging risk of the 21st century. High food prices are driven by population growth, energy security policies (biofuels) and climate change. “Policy-makers may have to return to thinking about food as a strategic asset and begin to modify food policies. Given the amount of uncertainty, the resilience of the world’s food system will be severely tested in the next few years“, the report concludes.

The vulnerability of the global supply chain is the third major risk factor identified by the report. “As the global economy has become more integrated, vulnerability to disruption of the supply chains which hold the global economy together may have increased. Resilience is no longer just about internal management“.

Last but not least, the report points to the challenges of climate change and energy security and questions whether the world can move to secure and sustainable energy. “One key issue”, says the report, is “the inherent mismatch between those who bear risk and reward. Without alignment of
interests and alignment of risk and reward, building complex coalitions to manage global risks will be difficult“. The WEF experts also warn that the financial instability in 2008 could lead to governments and businesses neglecting the climate change and food insecurity threats.

Next to the four key risks for 2008, the WEF report also highlights other dangers such as a slowing of the Chinese economy (to 6% growth), tensions in the Middle East, a US-Iran military confrontation, potential natural disasters, the emergence of nanotechnology risks and transnational crime and corruption. Overall, a pretty bleak but realistic picture of the world’s state of affairs at the beginning of this year, but a must-read report for anyone concerned with the big policy challenges of our near future.