Global Risk Index and Scenarios
A new risk scenario was introduced in the latest quarterly forecast update: Europe downturn.
A deeper slowdown in the Eurozone—the world’s third-largest economy—could cause real GDP growth to drop to 2.6% while inflation rises to 7.6% in 2024. Sharp declines in industrial production and consumer spending in the Eurozone would affect exports from the US, China, Japan, Singapore and the UAE, among other economies.
However, the main downside scenario threatening the economy is global fragmentation where the trade landscape becomes progressively disrupted and divided. Trading costs would rise due to protectionist policies, tariffs and other barriers. In this scenario, real GDP slows to 2.7% growth and inflation reaches 7.2% in 2024. Businesses could face higher costs and reduced access to markets while consumers experience higher prices and limited options.
Geopolitical tensions could also cause a commodity price hike where real GDP growth only reaches 2.5% and inflation surges to 8.0% in 2024. Significant spikes in commodity prices have second- and third-order effects given the impact on production costs. These increases are then passed along in the supply chain and eventually spread through entire economies.
Stagflation—stagnant economic activity combined with high inflation—is another scenario that impedes global economic prospects. Real GDP growth would slow to 2.1% in 2024 while inflation hits 7.1%.
probability of a Europe downturn scenario
probability of a global fragmentation scenario
probability of a commodity price hike scenario
probability of a global stagflation scenario
Source: Euromonitor International Macro Model
Note: Euromonitor’s Global Risk Index ranks scenarios by their expected impact on global growth, calculated as global real GDP impact of the scenario multiplied by its one-year probability, relative to the average global downside risks probability. GDP impact is measured as the cumulative global real GDP change over three years compared to baseline scenario in percentage points (pp). The index is based on 62 of the world’s major economies (representing more than 90% of global GDP at PPP). The higher the index score, the higher the risk of the scenario to the global economy.
Top Risks
Geopolitical tensions
The Israel-Hamas war and potential escalation across the wider region pose considerable disruptions to the global economy like supply chain vulnerabilities and higher commodity prices.
The ongoing war in Ukraine could also lead to a renewed spike in global commodity prices if tensions escalate.
Higher-for-longer interest rates
The risk of resurging inflation could prompt central banks to prolong restrictive monetary policy, resulting in higher-for-longer interest rates.
Tight financial conditions—combined with additional headwinds—would ignite a faster slowdown of global economic activities.
Challenges in China
The real estate market in China remains unstable and could turn into a deeper crisis amid the rise of non-performing loans and the lack of comprehensive response.
This could cause weakened economic growth in China with negative trade spillovers globally.
Debt distress
The risk of a spiralling debt crisis is probable in an environment of high borrowing costs and a strong US dollar.
Developing countries are especially vulnerable with wider implications for global economic prospects.
