According to the McKinsey Global Survey of executive sentiment of March 2022, geopolitical risk displaced the pandemic and inflation as the biggest threat to global economic growth.
The war’s effects on volatility in energy sources and prices can produce dramatic effects throughout the global economy. Geopolitical instability is also a limiter for businesses as it prevents them from taking risks and expansion.
Here are 10 potential risks to global economic growth, according to the report
1. Geopolitical instability
Over half of executives who participated in the survey saw geopolitical instability as the biggest potential risk to global economic development. Geopolitical unrest affects confidence of businesses to take risks and increases uncertainty.
Rising inflation has impacted the cost of living, the cost of doing business, borrowing money, and every other facet of the economy. Over 35 percent of the respondents cited inflation as one of the biggest potential risks to global economic growth.
3. Volatile energy prices
Since the start of the Russia-Ukraine conflict, the crude oil prices were pushed to a record high. The geopolitical tensions increased instability in the Middle East and added to oil market nervousness.
4. Supply chain disruptions
The conflict in Ukraine has forced most organisations to create more resilient supply chains.
5. Rising interest rates
To combat inflation, central banks around the globe are hiking interest rates. This affects borrowers and businesses in different ways as the rates on financial products like loans and mortgages change.
6. Labour shortages
The current global labour shortage is impacting healthcare, transport, hospitality, social assistance, and foodservice industries. While COVID-19 triggered the trend, geopolitical tensions have added to the problem.
7. Increased economic volatility
The war has increased economic volatility. Also, the fluctuating energy prices have increased volatility in the markets.
8. COVID-19 pandemic
COVID-19 continues to impact the global economy as the threat is still lingering especially in parts of Greater China. China is key supplier to many industries and disruption in supply due to lockdowns has pushed many sectors such as the tech sector to cut down production.
9. Domestic political conflict
Domestic political conflict continues to be on the list as social tensions in many countries are on the rise. Over 10 percent of the respondents mentioned it as a threat to economic development.
10. Changes in trade policy
The past three years have witnessed several changes in trade policy of leading economies such as the US and EU. With changing dynamics in global relations, about 10 percent of business leaders see changing trade policy as a threat to economic growth.