Top Risks and Scenarios
1. The war in Ukraine
The war in Ukraine remains the primary downside risk to the global economy in 2023. Further escalation jeopardises social and economic stability.
Russia’s termination of the Black Sea Grain Initiative, for example, could severely threaten global food security and reinforce price pressures.
2. Downside scenarios
China, the US and Eurozone are highly vulnerable to further shocks with the real estate market, financial stability and energy security, respectively, at risk.
Downside scenarios in any of these major economies would have severe global spillover effects.
3. Debt distress
Global debt rapidly surged in recent years, impacting emerging countries, in particular.
The risk of debt distress with negative spillover effects on economic activity and overall stability has increased substantially as borrowing costs hit new highs.
4. Climate change
The increasing frequency of extreme weather events presents multiple long-term economic risks.
Climate-related production losses across regions in Q3 could severely disrupt the already-vulnerable global food supply.
Global Risk Index and Scenarios
The main scenario threatening the global economy is stagflation: a stagnation in economic activity combined with high inflation.
In the global stagflation scenario, the economy comes under significant pressure as growth risks materialise. Real GDP slows to 0.6% in 2023 and 0.2% in 2024. Energy supply, pricing uncertainty and high interest rates deteriorate business confidence and investments, which could lead to this outcome.
A new risk scenario identified in Q3 is global fragmentation. Here, the global economy becomes progressively fragmented with economies dividing into multiple blocs.
Real GDP grows at 2.5% in 2023 and 2.0% in 2024. Businesses could face higher costs and reduced access to markets while consumers experience higher prices and limited options.
Another scenario that impedes global economic prospects: a US hard landing. A national banking crisis and falling private sector confidence could result in a sharp slowdown of the US economy with negative spillover effects globally.
Source: Euromonitor International Macro Model
Note: Global Risk Index ranks scenarios by the expected global GDP impact, calculated as the three-year cumulative global real GDP impact relative to baseline scenario multiplied by its one-year probability, relative to the average global downside risks probability. The index is based on 62 of the world’s major economies (representing more than 90% of global GDP at PPP).
Not to be distributed without permission. The data included in this report is accurate according to Euromonitor International at the time of publication in July 2023.