Economic Risks

Risk Description	Drivers & developments to watch
Food price volatility Rising and volatile prices affect poor consumers globally (those whose consumption basket is more than 50% food)	+ Commodity price fluctuations as a function of the global business cycle + Commodity price fluctuations as a function of deteriorating climate conditions + Government price ceilings on food prices, leading to reallocation of production and food shortages in the future +/- Input prices, typically related to fossil fuel prices +/- Regional climate variation remains the largest driver of seasonal price volatility - Progress in and access to agricultural technologies allowing for enhanced yields - Proliferation of policy frameworks to foster investments in agriculture and rural development - Implementation of social safety nets specifically targeted to benefit vulnerable societies
Oil price spikes Sharp and/or sustained oil price increases place further economic pressures on highly oil-dependent industries and consumers, as well as raising geopolitical tensions	+ Expected growth rates in key emerging markets + Extreme weather patterns + Geopolitical tensions + Factors driving potential terrorist events - Investments in exploration and production capacity - Economic and political stability in oil-producing countries - Ability of OPEC to establish price floors - Implementation of high energy-efficient, low-carbon technologies - Clear and consistent biofuels policy development
Major fall in the US dollar An abrupt, major fall in the value of the US dollar with impact throughout the global economic and financial system	+ Redirection of investments by major US dollar reserve-holding countries +/- Monetary policy differentials in the US and its major trading partners +/- Attractiveness of the US as destination for international portfolio flows +/- Relative growth differentials between the US and its major trading partners
Slowing Chinese economy Sudden reduction in China's growth to 6% or less	+ Excess ex-ante savings over-investments in China +/- Chinese government's ability to stabilize domestic demand in the wake of loss in export momentum +/- Ability of Chinese government to maintain stable renminbi in the wake of high foreign reserve accumulation +/- Ability of Chinese government to maintain political stability in the wake of sizeable loss in growth momentum
Fiscal crises Overstretch of fiscal positions generates unsustainable levels of debt, rising interest rates, inflationary pressures and sovereign debt crises	+ Short-run developments in fiscal positions due to cyclical deterioration, automatic stabilizers and stimulus programmes + Rising interest rates + Demographic developments; mainly ageing populations in advanced economies +/- Clarity around the timing and stages of exit strategies +/- Changes in entitlement programmes - Reform of social systems - Persistently high rates of inflation
Asset price collapse A collapse of real and financial assets in advanced and emerging market economies leads to the destruction of wealth, deleveraging, reduced household spending and demand	+ Sharp increase in financial asset prices + Sharp increase in prices of real assets (commercial and private real estate, commodities) + Increased volatility in financial asset prices - Changes in central banks' policy frameworks modifying price stability goals and giving more weight to overall financial stability
Retrenchment from globalization (developed) Multiple developed economies adopt policies that create barriers to flows of goods, capital and labour and fail to engage with multilateral governance structures to address global challenges	+ New trade barriers (implicit and explicit through tariffs and subsidies) erected + Increase in anti-dumping suits + Increased hurdles to cross-border labour migration + Failure of Doha trade negotiations + Consequences of regulatory reforms constraining capital flows +/- Change in outsourcing and offshoring patterns of multinational corporations + Populist parties gaining ground in elections or coming to power in developed nations
Retrenchment from globalization (emerging) Multiple emerging economies adopt policies that create barriers to flows of goods, capital and labour and fail to engage with multilateral governance structures to address global challenges	+ New trade barriers (implicit and explicit through tariffs and subsidies) erected + Increase in anti-dumping suits + Increased hurdles to cross-border labour migration + Failure of Doha trade negotiations + Measures to close domestic markets to capital inflows and foreign direct investments + Populist parties gain ground in elections or come to power in developing nations
Burden of regulation If not balanced, regulation can have unintended consequences for industry structures and market competition, distorting the allocation of capital and constraining investment and the power to innovate	+ Measures to tighten financial sector regulation + Government intervention in support of weak corporations in finance and manufacturing + Changes in rules and red tape governing various industries
Underinvestment in infrastructure Failure to invest in physical or intangible infrastructure hinders growth and development and results in major	+ Constraints on fiscal budgets and need to cut infrastructure spending + Regulatory interventions that impair efficacy of the financial system + Reports about attempted break-ins in and outright failures of critical information infrastructures and power grids + Difficulties for the private sector to raise financing or secure guarantees for large projects

Key:

	Same assessment as last year
	Increased
	Decreased

Plus signs (+) denote drivers increasing risk; minus signs (-) denote drivers that reduce risk

Global impact	Likelihood	Severity
Rising food prices affect mostly landless and the poorest in disadvantaged regions There is clear evidence in some crops that small producers enter and exit the sector in cycles in response to market prices, exacerbating price volatility Malnutrition and health consequences in the poorest segments of global society Social unrest and riots
According to the International Energy Agency (IEA), a sustained US$ 10/barrel increase in the price of oil could lower growth of global GDP by 0.5 percentage points (pct pts) in the subsequent year Depending on the oil-sensitivity of growth, the adverse impact is substantially higher in emerging market and developing countries; the first-year loss of growth could be 0.8 pct pts in Asia and up to 1.6 pct pts in highly indebted developing countries In addition to adverse impacts for growth effects, substantially higher oil prices generate current account surpluses in producing countries, which may exacerbate global macroeconomic imbalances and fuel financial market turbulence
Adverse impact on the stability of the US financial markets and force the Federal Reserve to raise interest rates in defence of the dollar to levels not commensurate with growth An abrupt decline in the US dollar relative to the currencies of major US trading partners would affect an already weakened financial system and a weak global economy
China's economy is firmly linked to the global economy and to the global capital markets; it is a large importer of commodities The country's reserves are invested abroad (predominantly in US government bonds) China has developed a strong presence on the African continent through direct investments and development aid A loss in China's growth momentum could adversely affect global capital and commodity markets
According to an IMF baseline scenario, government debt-to-GDP ratios for the G20 countries will increase from 63% in 2007 to 85% by 2014. In advanced G20 countries, the increase will be even more pronounced, from 78% to 114% The marked deterioration is likely to exert strong upward pressure on real interest rates; according to IMF estimates, an aggregate deterioration in the global debt-to-GDP ratio of 10 percentage points may raise global interest rates by 40 basis points In highly indebted economies, spreads on government bonds may rise significantly, exacerbating the risk of sovereign debt crises
Recent experience and long-term studies underscore the devastating impact the collapse of real and financial assets can have on the real economy (in terms of lost output) and the financial system (in terms of loss in allocative efficiency) The current financial crisis led to a global recession with a loss in world output of 1.5% and a con¬traction in advanced economies of roughly 3.5% Future asset price collapses may cause similar outcomes depending on sectors involved and their geographic location
2009 saw sharp decline in global trade, mostly due to the global recession; however, the World Bank also observed an underlying increase in protectionist measures Similarly, proposed financial market regulation may have the unintended consequence of stifling capital market growth and innovation leading to substantial adverse welfare effects and lower growth rates of potential output
A retrenchment from globalization would cut off emerging market countries from the benefits of globalization, such as access to global capital markets, intellectual know-how and best practices disseminated through the presence of globally active corporations While these benefits are difficult to quantify, a retrenchment would clearly set both emerging and advanced economies on a lower growth trajectory of potential output
Balanced regulation undoubtedly benefits a majority of stakeholders but increases the cost of doing business A recent study by Deloitte done for the FSA on the financial sector suggests the total global incremental burden of regulation would fall into a range from US$ 100 billion to US$ 500 billion
The American Society of Civil Engineers puts US infrastructure needs at about US$ 2.2 trillion over a time span of five years, which would require annual investments of about 3% of GDP. The impact of catastrophic failure would be a multiple of annual investments

Geopolitical Risks

Risk Description	Drivers & developments to watch
International terrorism International terrorists continue to mount sizeable attacks, causing significant economic and human losses and exacerbating retrenchment from globalization	+ Instability on the Indian sub-continent, particularly Indo-Pakistani relations but also indigenous movements such as Naxalites + Level of political radicalization from the economic crisis + Weak governance in parts of Africa provides alternative retreat positions to Afghanistan and Pakistan. +/- Whether security gains are sustainable and lasting after US withdrawal from Iraq - New and credible peace efforts in Israel/Middle East - The West's pressure on the terrorists' sanctuaries in Afghanistan and the Horn of Africa + Other marginalized groups such as ETA remain active
Nuclear proliferation Multiple states pursue nuclear armament, with associated increase in geopolitical tensions	+ Iran's nuclear ambitions, particularly whether it will test a nuclear device or seek de facto nuclear status with the capability to develop a nuclear device on short notice + rising demand for nuclear energy capacity as an alternative to fossil fuels may lead to more countries developing nuclear capacity +/- North Korea's cooperation on nuclear disarmament + Difficulty in enforcing NPT, even among signatories +/- Whether Brazil sticks to the promises and agreements of a nuclear weapons-free South America
Iran Iran's nuclear programme and its role in the Middle East increases instability and tensions regionally and internationally	+ If Iran develops and tests a nuclear weapon, the regional power balance would be threatened + Israel-Iran tensions + Confrontation between Iran and Western powers would impact oil supply +/- Internal instability within the country could lead to more hard-line stance by the Iranian leadership OR regime change +/- Shifting power and influence of Russia and China
North Korea North Korea becomes increasingly unstable and unpredictable, causing domestic suffering and heightening tensions regionally and internationally	+/- Regime stability and power transition in North Korea +/- Level of support by China and, to a lesser extent, Russia of North Korea - Inter-Korean relations and rapprochement - Control, inspection and verification activities on disarmament
Afghanistan instability Nation-building in Afghanistan fails, providing haven for international terrorist groups and triggering increasing instability in Pakistan	+ Taliban seems to be emerging stronger than before, which means more fighting, loss of life and destruction of  property + Divide among the civilian population with conflicting patronage could lead to civil unrest and more internal fighting + Destabilizing elements in neighbouring Pakistan and Iran could perpetuate instability post-Allied forces withdrawal - Corruption and weak governance and national institutions
Transnational crime and corruption Penetration of organized crime in the global economy increases significantly over a 10-year period, weakening state authority, worsening the investment climate and slowing growth	+ Harsh economic conditions linked to increased illicit activity and corruption +/- tighter regulatory environment across services and products - Greater information sharing and collaboration across different jurisdictions and security, trade and financial agencies
Israel-Palestinian Worsening Israel-Palestinian conflict claims thousands of lives over a 10-year period, and exacerbates geopolitical tensions and economic decline throughout the region	+/- Willingness of parties to reach a consensus on key issues such as settlements and Jerusalem + US diplomatic efforts could have significant impact on the peace process and tangible outcomes - Level of international support and pressure for new peace efforts - Increased influence of hard-line or religious groups on either side - Regime stability and governance in Palestinian Territories - Influence of Iran through its support for militants
Iraq Stabilization efforts in Iraq fail, violence and terrorism proliferate, resulting in loss of life and further destabilization of the region	+/- A timetable for a withdrawal of US and Allied forces +/- The level of sectarian violence between Shia, Sunni groups +/- The level of autonomy and secession of the Kurdish territories - Improved capacity of the Iraqi security apparatus + Involvement of Iran and other neighbours
Global governance gaps Weak or inadequate global institutions and agreements, and competing national/political interests impede necessary collaboration on global risks	+ Various governments are working at national level to reform national regulations; however, agreement at international level seems to be remote + It will take time for a new standards and governance system to come into effect + Significant gap in standards and governance among three major regions: Asia, Europe and US + Delay in new international governance set-up - G20 now established, marking a shift from the “G8+” approach

Key:

	Same assessment as last year
	Increased
	Decreased

Plus signs (+) denote drivers increasing risk; minus signs (-) denote drivers that reduce risk

Global impact	Likelihood	Severity
Al-Qaeda and its affiliates remain active. Sporadic terrorist attacks by these and other groups remain a threat in multiple countries 2009 saw a significant rise of attacks in Pakistan Diplomatic and military escalations can both result from and drive some of these incidents Travel, local commerce and tourism are affected in regions where fears of terrorism run high
Potential for greater diplomatic tensions or even conflict among states in efforts to prevent access to nuclear capacity Increased need for spending on intelligence and surveillance Breakdown of regional trade and drag on development
Economic loss and difficulties for the Iranian population as a result of embargo and sanctions Disruption in oil supply to the rest of the word if there is further confrontation between Iran and Western powers Loss of life if the countries engage in war Link to extremism and terrorism
Less expenditure on arms and more focus on trade on the Korean Peninsula If regime comes down, exodus of North Koreans to neighbouring countries Economic strain on South Korea and the region due to handling fallout from a collapsing North
More regional instability, including Pakistan Exploding economic and political costs in the West to continue military campaign Other neighbouring countries/powers becoming embroiled in conflict Loss of life and suffering Link to extremism and terrorism
Economic loss and significant burden on business and individuals Drag on growth in developing countries
Loss of life and suffering Absence of any economic development in the Palestinian regions Drag on growth and development in the wider region Link to terrorism and extremism
Loss of life and suffering Regional instability Destruction of infrastructure in Iraq Link to terrorism and extremism
Economic inefficiency due to tariffs and barriers Increased likelihood of systemic risks Regulatory arbitrage opportunity

Environmental Risks

Risk Description	Drivers and developments to watch
Extreme weather Increasing severity of extreme weather events due to climate change results in greater damage to the environment, infrastructure and property, displaced populations and loss of life	+ Current global emission path + Population growth and/or economic development in risky regions (e.g. coastal cities) +/- Impact of current economic environment on commitments to long term climate change mitigation activity +/- Outcome of COP15 conference in Copenhagen and commitment of govt. on CO2 emission reductions goals - Implementation of mitigation measures by government - Adaptation measures by government and participations of NGOs and private industry - Investment on renewable and green infrastructure projects - Technological developments in improving energy efficiency - Public-Private-Partnership on policies, data sharing, methodology, and risk management practices - Data gathering on changing climatic conditions and vulnerability of assets and life in exposed parts of the world
Droughts and desertification Increased frequency and severity of heatwaves and droughts and the spread of desertification significantly reduce agricultural yields around the world and displace populations	+ Population growth and resource-intensive consumption patterns + Changing weather cycles due to climate change + Soil erosion + Affected size of the population and region as percentage of GDP - International, national and regional policies and rules on deforestation - Reforestation drive supported by PPP - Adaptation measures in the form of insurance and reinsurance - Comprehensive policy measures for long-term prevention and adaptation - Use of technology to increase crop yield/water usage ratios
Water scarcity Declining quality and quantity of water leads to water shortages, increased health risks, conflict and population displacement	+ Population growth and resource-intensive consumption patterns + Changing rainfall patterns + Increase of water use in generation of energy - International policies and governance on water use for irrigation and drinking - Bilateral agreements for sharing water resources and reservoirs spanning across country borders - More efficient distribution channels and efficient use of the available water resources
NatCat: Cyclone An extreme tropical storm hits an economic centre or a densely populated area	+ Population growth and density in cyclone-prone areas + Significant changes in climatic conditions and sea temperature + Changing weather cycles + Under-investment in critical infrastructure, e.g. in resilient electricity grids +/- Global emission development path - Improvements in building codes and construction are being outweighed by asset value and population concentration in coastal areas - PPP in adaptation and rehabilitation measures of the population - Willingness and preparedness to take proactive steps in the event of impending storm activity
NatCat: Earthquake A strong earthquake hits an economic centre or densely populated area such as Tokyo, Los Angeles, San Francisco, Beijing or Mumbai	+ Population growth and density in earthquake-prone locations - New technology and methodology for more sensitive detection and early warning systems - Effectiveness and efficiency of crisis management capabilities in affected areas (mitigation plans and execution efficiency) - New design and technology for more resilient infrastructure and buildings in earthquake-prone regions
NatCat: Inland flooding Extreme inland flooding of the Mississippi, Yangtze, Thames or Rhine rivers, for example, causes direct economic and human losses and serious disruption downstream	+ Population growth and density in areas prone to inland flooding - Further investment in infrastructure for drainage and control of inland flooding - Systematic and long-term plans to move people and property from danger zones - Pre- and post-flood preparedness (early warning systems and evacuation plans) - Insurance for potential damages +/- Changing rainfall patterns
NatCat: Coastal flooding Rising sea levels, coastal flooding and erosion affect property and infrastructure and displace people and economic activity	+ Population growth and density in coastal areas - New technology and collaboration on early detection and warning systems - Evacuation plans - Insurance and rehabilitation plans - Data sharing and international cooperation on flood protection +/- Global emission path + Trend and speed of landlocked ice melting
Air pollution Poor air quality leads to increased incidence of acute respiratory diseases and allergies, reducing productivity and increasing health costs	- National regulations on pollution controls - Regional policies and directives on pollution control measures + Over-reliance on fossil fuels for energy production to meet forecast demand - Improved technology for energy use and waste treatment + Long-term health impacts and increased health costs +/- New US administration willingness to act on environmental issues - Implementation of anti-pollution technologies
Biodiversity loss Degradation of biodiversity results in severely depleted stocks of resources in fishery, forestry and other bio-services with potentially irreversible consequences for the environment	+ Population growth and resource-intensive consumption patterns + Over-fishing (oceans, lakes and rivers) - International agreement on GHG emissions - Active national plans on adaptation measures and protection of biodiversity - Legal and economic support to less-developed nations/communities for the preservation of biodiversity - International, national and local awareness on the issue - Introduction of geo-engineering - Protection of rain forests and high biodiversity regions (e.g. wetlands and swamps) - Global agreement on forestation/deforestation

Key:

	Same assessment as last year
	Increased
	Decreased

Plus signs (+) denote drivers increasing risk; minus signs (-) denote drivers that reduce risk

Global impact	Likelihood	Severity
Damage to infrastructure and loss of property Loss of life Migration of human population Irreversible change in environment Effect on biodiversity
Increase in economic losses Inefficient use of land resources Change in weather patterns Migration of human populations Concentration of populations in regions with access to water Competition for scarce resources Biodiversity loss Further damage to the environment
Increase cost of water exploitation and transportation Increased cost of water consumption Conflict over water Decrease in drinking water quality and spread of diseases Extreme scarcity of drinking water in some parts of the world
Economic losses and loss of life Migration and resettlement of population Increased vulnerability of ageing infrastructure Investment in rebuilding the infrastructure
Tremendous economic loss and loss of life Destruction of infrastructure Displacement and rehabilitation of people Infrastructure losses
Economic loss and loss of life Destruction of infrastructure Displacement and rehabilitation of people Infrastructure losses
Increased health costs Decrease in productivity Loss of life
Extinction of flora and fauna Changes in habitat Irreversible damage to environment through deforestation and ecological imbalance Reduction in agricultural and fishery yields Migration

Societal Risks

Risk Description	Drivers & developments to watch
Pandemics A lack of preparedness to respond to a pandemic of a highly infectious disease at the international, state or corporate levels exacerbates loss of life and results in the breakdown of essential systems (ICT, power, supply chains)	+ International awareness on the pandemic and its impact + Transmission ability of the new viral strains (viral evolutionary rule) - Effective monitoring and communication of virus activity + Emergence of H1N1 and new strains of the virus - Coordination of public and private resources in mitigation planning - Coordination of response and mitigation by different countries - Availability of vaccine for specific disease (H1N1) - Supply-chain preparedness and cooperation - Emergency communication, transportation and treatment infrastructure
Infectious disease The incidence and patterns of known (e.g. TB, malaria, cholera, HIV/AIDS) and new infectious diseases shift to new regions and population segments	- International coordination in dealing with these diseases - Availability of vaccine and treatment drugs at affordable prices - Development of generic treatment drugs made available to poor populations - Policy and legal support at international and national levels - Incentives for pharma industry regarding patent rights - Public health policies and education
Chronic disease Chronic diseases (cardiovascular, cancer, diabetes and chronic respiratory disease) spread rapidly throughout the developed and developing world, driving up health costs and reducing productivity and economic growth	- Awareness about the importance of a healthy diet and physical activity - New scientific data on causal links - Advances in diagnostics, drug development and therapeutics - Improved understanding of genetic factors and precise treatment mechanisms + Health and insurance costs +/- Linkage to productivity and economic development
Liability regimes The spread of US-style liability regimes to other jurisdictions reduces personal accountability and loss sharing, and global insurance capacity, undermining investment and growth.	+/- EU regulation on how to deal with collective redress and burden of proof + Activism of consumer protection groups and emergence of new consumer protection laws + Formation of legal cells working on commission basis
Migration In the absence of adapted socio-economic policies (e.g. labour policies) in both donor and recipient countries, migration (including illegal) triggers social tensions and nationalistic movements	+ Increasing parochialism, especially given current economic conditions and development in coming years + Internal, regional and international conflicts - Pre-emptive social measures to deal with economic issues - Equitable sharing of resources and infrastructure by all - Fair trade measures through WTO, IMF, etc., and effective governance framework - An international migration framework taking into account the economic hardships of poor countries on one hand and ageing populations on the other

Technological Risks

Risk Description	Drivers & developments to watch
CII breakdown Susceptibility of CII to attacks or system failures creates domino effect, shutting down IT-dependent applications in power, water, transport, banking and finance, and emergency management.	+/- New technology hardware and software development - Data and information sharing among governments and between government and private institutions - Acceptance of the concept of infrastructure sharing in emergency situations - Legal framework to penalize offenders - Resilience of institutions - Detection of events and BCM effectiveness + Space weather disturbances
Nanoparticle toxicity Studies reveal health impairment due to exposure to widely-used nanoparticles (paint, cosmetics, healthcare). Primary impacts on public health, secondary impacts on investment in a range of nanotechnologies	- More scientific evidence establishing the cause and effect chain - Legal obligation of the producers to label the negative effects of product usage + Increase in nano-material and technology use - Public demand for labelling +/- Protection for nano-material and technology use
Data fraud/loss Major accidental loss of data or fraud triggers backlash against the organization/body holding that data and broader loss of confidence in data sharing and accumulation	- Development of best practices for data security - Legal framework to penalize culprits - Information sharing among governments and private firms regarding loss events + Penetration of Internet, especially user-generated content - Stronger perception of data fraud as a compliance issue (in public discussion)

Key:

	Same assessment as last year
	Increased
	Decreased

Plus signs (+) denote drivers increasing risk; minus signs (-) denote drivers that reduce risk

Global impact	Likelihood	Severity
Loss of life Tremendous burden on critical resources and services Perhaps long-term impact of vaccination if not thoroughly tested Loss of productivity and economic loss
Loss of life Loss of productivity Extra burden on the healthcare system Re-emergence of drug-resistant bacteria and other pathogens Migration of the diseases to other regions through travel and contacts
Increase in death rates due to these diseases Loss of productivity Increased healthcare costs Decreased productivity and quality of life
Increased legal costs, which will eventually be borne by consumers and/or taxpayers Shifting of business to other countries where liability regimes are less stringent
Suffering of people and destruction of resources in forced migrations In case of conflict, more retaliatory measures against and barriers to movement of resources and people Societal impacts as/if migrant workers return to home countries Loss of remittances from diaspora
Potentially severe disruption to critical services and systems (communications, energy and financial) Disruption of business services Disruption of critical government services Loss of trust in systems and technology Direct and indirect economic losses
Long-term impact on health and healthcare systems Product recalls Plethora of court cases on product liability Change in technical and chemical design of nanotechnology and nanochemicals Insurance claims
Loss of trust in the data systems Standardization of protocols and technology for data storage and transmission Acceptance of breach of privacy as people share more and more private information through social networking platforms Negative image impact on organizations processing mass data (telecoms, utilities, transportation, governmental organizations)