The crisis due to the increase in the cost of living due to the pandemic and the war in Ukraine is impoverishing households, especially the most vulnerable. This is the main economic risk facing the world in the short term, and Latin American countries such as Colombia are no exception. This is reflected in the report ‘The Global Risks Report 2023’, published by the World Economic Forum (WEF, for its acronym in English), which brings together from today until Friday more than 2,700 political, economic and social leaders from 130 countries in the town of Davos (Switzerland).
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As usual, the Davos Forum debates are preceded by the presentation of an annual report on the risks that are currently threatening the world and which are carried out based on a survey of different personalities.
As 2023 progresses, the report says the world is facing a host of risks that feel at once new but strangely familiar. The world economy has returned to old phenomena such as inflation, trade wars or widespread social unrest; however, these problems are now amplified due to unsustainable debt levels, an era of low growth, and increasing pressure from climate change, among others.
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All of this —he warns— will lead the world to experience a possible «polycrisis» of socioeconomic, geopolitical and environmental risks that could lead to a turbulent and uncertain decade with greater instability and a humanitarian emergency.
high inflation risk
After the alterations imposed by the covid-19 pandemic, the Davos Forum resumed this year its usual place and dates of celebration. The event will be attended by fifty heads of state and government, such as the president of Colombia, Gustavo Petro.
There will also be personalities of the stature of the presidents of the International Monetary Fund (IMF), kristalina georgieva; from the European Central Bank (ECB), Christine Lagarde; or that of the United Nations (UN), António Guterres.
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In the near term, the rising cost of living is the most severe global risk the report identifies. Over the next two years, governments and central banks could face inflationary pressures, especially if the war in Ukraine drags on, bottlenecks stemming from the pandemic persist, and supply chain problems limit.
The collateral effects of this situation would be felt more strongly by the most vulnerable parts of society, which in turn, according to the World Economic Forum, will contribute to an increase in poverty, hunger, violent protests, political instability and even the collapse of the state. Likewise, economic pressures could erode the gains made by middle-income households, leading to discontent, polarization, and demands for better social protections in countries around the world.
According to the report, inflationary pressures and the possible slowdown could hit the region’s emerging and developing economies that are highly exposed to globalized capital flows to a greater extent, as the likelihood of liquidity crises and over-indebtedness would increase. This is because with the tightening of monetary policy in many markets, such as Brazil, Mexico, Peru and Colombia, Record capital outflows are taking place.
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Against this backdrop, the report warns that governments will continue to face a «dangerous» balancing act between shielding citizens from a protracted cost-of-living crisis and covering debt-servicing costs as revenues dwindle. increasingly pressured by an economic recession.
Two of the top 5 short-term global risks are weather related. The second threat in our immediate future is natural catastrophes and extreme weather events that could lead to further loss of life, financial loss, and damage to ecosystems. Meanwhile, the fourth biggest problem is the lack of climate change mitigation.
In addition to this, the geoeconomic confrontation —including sanctions, trade wars and investment control— was ranked as the third most serious risk worldwide in the next two years. This appears as the main risk, especially in many countries of East and Southeast Asia.
And in the midst of this panorama of crisis, the erosion of social cohesion and polarization was perceived as the fifth risk worldwide. Inequalities whether in terms of income, ethnicity or race, educational level, demographics, or political affiliation are growing among people, increasing instability around the world.
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“The near-term risk landscape is dominated by energy, food, debt and catastrophes. Those who are already the most vulnerable are suffering, and those who qualify as vulnerable are increasing rapidly, in both rich and poor countries. Climate and human development must be at the center of world leaders’ suspicions, even as they grapple with current crises. Cooperation is the only way forward,” said Saadia Zahidi, CEO of the World Economic Forum.
weather in focus
In the long term, the biggest unknowns will be climatic and environmental. These represent four of the top five threats for the next 10 years. In addition, they are the ones for which we are least prepared.
According to the World Economic Forum, these risks are underestimated in the global economy. However, without significant policy change or investment, the interplay between the impacts of climate change, the loss of biodiversity, food security and the consumption of natural resources will accelerate the collapse of ecosystems, it will threaten food supplies and livelihoods in climate-vulnerable economies, amplify the impacts of natural disasters, and limit future progress.
The fifth greatest threat for 2033 is large-scale involuntary migration resulting from discrimination and persecution as well as lack of opportunities, disasters and internal conflicts.
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Inflationary pressures are also the main threat for the countries of the region, with the exception of Peru, where in the midst of the wave of protests after the failed coup d’état by Pedro Castillo, the greatest risk is state collapse, or Venezuela, where It is the serious crisis of supply of basic products.
After the price increase, what worries the most in the short term in Colombia is digital inequality, followed by the employment crisis, the collapse of the state and the increase in the cost of living.
According to Luis Fernando Mejía, director of Fedesarrollo, the main challenge in Colombia right now is to control inflation. However, note that it would place the generation of employment and economic growth as a second threat.
In third place —he says— would be inequality in access to quality education, at all levels, which is one of the biggest barriers to social mobility in the country.
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Along the same lines, Anwar Rodríguez, vice president of the Anif economic studies center, It will point out that inflation, the cost of living and the employment crisis will be the main risks that will affect the well-being of Colombian households. «We must bear in mind that we continue with an economy that presents significant imbalances, maintaining a high fiscal and current account deficit,» he stressed.
Although the countries of the region share concerns, it stands out that in most of them the extinction of illegal economic activity is mentioned as a great threat.
In Argentina the debt crisis is also mentioned, or in Uruguay they are concerned about automation and the displacement of jobs.
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