Top global risk scenarios: China’s military manoeuvres could force a full decoupling of the global economy

More than a year has passed since Russia invaded Ukraine, heightening global economic and geopolitical risks. EIU’s latest report “Top global risk scenarios” assesses the likelihood of four critical geopolitical and economic risks, and outlines the impact these would have on global operating environments.

Military manoeuvres by China could force a full decoupling of the global economy

Moderate probability; Very high impact

Western democracies have been concerned about China’s tacit support to Russia since that country invaded Ukraine. In parallel, China is apprehensive of US-Taiwan relations and of US efforts to convince other democracies to pressure it using restrictions on trade, technology and finance.

Persistent investor jitters may trigger financial sector contagion

Low probability; Very high impact

The collapse of two US regional banks in March prompted major central banks to boost the availability of liquidity in an effort to stem market concerns and diminish the risk of contagion. If bank customers and investors remain jittery, there could be other runs on commercial banks, triggering a global financial crisis.

Geopolitical tensions could reignite a nuclear arms race

Low probability; Moderate impact

Geopolitical tensions remain high. Russia’s suspension in February of a nuclear arms treaty with the US could lead to a new nuclear arms race.

There is a low probability that there will be a full nuclear arms race, but political grandstanding and fractured global governance has raised the risk of nuclear competition among global powers. In recent months the Russian government has repeated thinly veiled nuclear threats against Ukraine, Iran has neared nuclear-grade uranium enrichment and North Korea has threatened to respond to US-South Korea military exercises.”

CODY FELDMAN, SENIOR ANALYST, EIU

A rapid easing in inflationary pressure could boost global growth

Low probability; High impact

The war in Ukraine has put a floor under global energy prices, but mild winter temperatures in Europe have made it easier for the region to restock its energy reserves. Moreover, the region continues to improve its capacity to import liquefied natural gas. If European energy demand is lower than we expect in 2023/24, crude oil prices could fall, prompting a faster fall in inflation.

EIU’s “Top global risk scenarios” report is available free of charge here.

The insights and data featured in this report come from EIU’s Operational Risk service. This integrated solution provides an in-depth analysis of global events that are affecting operational risk in 180 countries and 26 industry sub-sectors. Find out more about Operational Risk and how you can benefit from the service here.