Top global risk scenarios

Explore the geopolitical and economic risks

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TOP GLOBAL RISK SCENARIOS
EXPLORE THE RISKS THAT COULD RESHAPE THE GLOBAL ECONOMY

Top global risk scenarios

EIU’s operational risk score improved for 49 countries (out of 180) and
worsened for 31 countries.
• In the first quarter of 2023 EIU’s operational risk score improved for 49 out of 180 countries and
worsened for 31.

• The operational risk score quantifies risks to business profitability, accounting for present conditions
and our expectations for the next two years.

• Macroeconomic risks have decreased for 45 countries, as many economies have proved resilient
against ripple effects from the war in Ukraine.

• Amid the collapse of two US regional banks in mid-March, financial risks have risen in nine countries
(including the US and Switzerland).

• We believe that there is a low likelihood of financial sector contagion, given high levels of banking
supervision and solid capitalisation.

• 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.

• We do not expect US-China tensions to ease anytime soon. There is a moderate probability that
Western democracies and China decouple suddenly during our forecast period (2023-27), notably if
a conflict were to erupt around Taiwan.

In the first quarter of 2023 the operational risk score improved for 49 countries
(change in EIU operational risk score January-March 2023)

Netherlands
Ireland Lithuania
Ukraine
Serbia
Bulgaria Syria South Korea
China
Taiwan
Haiti
Gambia Myanmar
Ghana Oman
Costa Rica
Papua New Guinea
São Tomé and
Príncipe
Increasing risk

No change

Decreasing risk

Source: EIU.

1 © The Economist Intelligence Unit Limited 2023

TOP GLOBAL RISK SCENARIOS
EXPLORE THE RISKS THAT COULD RESHAPE THE GLOBAL ECONOMY

More than a year has passed since Russia invaded Ukraine, heightening global economic and
geopolitical risks. Inflationary pressures have eased since mid-2022, but high interest rates are weighing
on growth and investor confidence. On the geopolitical stage, our core assumption is that a protracted
war in Ukraine, with no clear resolution, will widen divisions between Russia and Western democracies.

Global risk scenarios

Political Military Economic Environmental

Deteriorating ties Geopolitical tensions War in Ukraine turns

between China and prompt nuclear arms race into global conflict
EU/US

Inflation eases Financial sector

rapidly, boosting contagion triggers
global recession Cyberwar
economic growth* erupts

Guxxxxxxxx
Conflict erupts between
New, highly aggressive China and Taiwan
infectious disease
emerges

High inflation fuels Extreme weather and war

social unrest in Ukraine prompt famine
Source: EIU. *Positive scenario.

Positive scenario: a rapid easing in inflationary pressure could boost global

growth
Low probability; High impact
Global inflation could drop faster than we expect (we currently expect it to ease from 9.3% year on year
in 2022 to 7% in 2023). 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

Mild winter temperatures in Europe helped to ease inflationary pressures

(consumer price inflation, % change year on year; seasonally adjusted)
Euro area US UK Canada Japan
12

10

-2
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2021 22 23
Source: EIU.

2 © The Economist Intelligence Unit Limited 2023

TOP GLOBAL RISK SCENARIOS
EXPLORE THE RISKS THAT COULD RESHAPE THE GLOBAL ECONOMY

region continues to improve its capacity to import liquefied natural gas. If European energy demand
is lower than we expect in 2023/24, owing to a combination of warm weather and improved energy
efficiency, crude oil prices could fall. This would affect prices along the supply chain and could prompt
a faster fall in inflation, which in turn would boost growth in Europe and other regions, as businesses
would benefit from greater consumer demand, and trade in goods and services would grow.

Negative scenario: 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. The massive
concerted effort helped to reassure investors, but volatility will persist in the coming months. If bank
customers and investors remain jittery, there could be other runs on commercial banks, triggering a
global financial crisis. Small, regional US banks (which are not subject to the tight reporting standards
implemented after the 2008-09 financial crisis) would be most at risk of capital flight and failure if they

The banks are alright

(%)

Tier 1 capital to risk-weighted assets Non-performing loans to total gross loans

2008 2022* US UK Hong Kong
5 10 15 20 25 30 Italy South Africa India
Argentina France Spain
Italy 20
UK
16
South Africa
Germany 12
Hong Kong
Switzerland 8
India
4
Singapore
US† 0
Brazil 2009 10 11 12 13 14 15 16 17 18 19 20 21 22

Liquid asset ratio Return on equity

2009 2022* Q2 2009 Q3 2022
10 20 30 40 50 60 70 -4 0 4 8 12 16 20
Argentina UK
Australia Netherlands
Turkey US
UK
Japan
US
Canada
Canada
India Spain
Brazil Australia
Hong Kong Brazil
Greece South Africa
South Africa India
Germany Hong Kong
Sources: IMF; EIU. *End of period; Q3. †Q1 2009.

3 © The Economist Intelligence Unit Limited 2023

TOP GLOBAL RISK SCENARIOS
EXPLORE THE RISKS THAT COULD RESHAPE THE GLOBAL ECONOMY

were unable to meet capital and liquidity requirements. Systematically important financial institutions
could see significant losses to their balance sheets through takeovers or suffer from a run on deposits,
weighing on investor confidence and leading to a stockmarket crash. In the near term, central banks
would lower interest rates, but given still-firm consumer spending in developed economies, this would
fuel inflation. The combination of asset losses, poor market sentiment and deteriorating purchasing
power would prompt a recession in the US and Europe that could last into 2024.

Negative scenario: geopolitical tensions could reignite a nuclear arms race

Low probability; Moderate impact
In early 2023 Russia suspended its participation in a bilateral nuclear arms control treaty with the US
and announced plans to station nuclear weapons in Belarus. Since the start of the war the Russian
government has also made thinly veiled threats to use nuclear weapons in Ukraine. Meanwhile, Iran
is enriching uranium to close to the level needed to make nuclear weapons (this is in no small part
due to the collapse of the nuclear deal following the US’s unilateral exit from the agreement in 2018).
Finally, North Korea (a Chinese and Russian ally) is likely to respond to planned large-scale US-South

One year after the start of the war, an increasing number of countries are siding with Russia

Iran

Turkey

Mali
Qatar
Colombia
Bangladesh
Burkina Faso
Uganda
Bolivia
Singapore
South Africa
Condemns Russia
West-leaning
Neutral Notable country position shifts since 2022
Russia-leaning
Supportive of Russia To West-leaning To neutral from To Russia-leaning To supportive of Russia
from neutral West-leaning from neutral from Russia-leaning

By global GDP (%): By global population (%):

70 35
60 30
60.1 30.7
50 27.5 25
40 20
30 21.0 15
20 15.2 10
16.8
12.0 10 5.6 5
7.8
3.3
0 0
Condemns West- Neutral Russia- Supportive Condemns West- Neutral Russia- Supportive
Russia leaning leaning of Russia Russia leaning leaning of Russia
Source: EIU.

4 © The Economist Intelligence Unit Limited 2023

TOP GLOBAL RISK SCENARIOS
EXPLORE THE RISKS THAT COULD RESHAPE THE GLOBAL ECONOMY

Korea joint military exercises with nuclear tests. Over the past 30 years governments have cut nuclear
warhead stockpiles, but political grandstanding and fractured global governance could prompt a
new nuclear arms race. Unlike during the cold war, the higher number of nuclear-capable countries
increases the risk of a miscalculation.

Negative scenario: 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. Meanwhile,
the EU has become more vocal in criticising China for its human rights abuses in Xinjiang and the
unequal treatment of EU firms in China’s market. In an extreme scenario, China could initiate military
manoeuvres in Taiwan or provide direct military aid to Russia, exacerbating tensions and pushing
Western countries to unite in imposing sweeping trade and investment restrictions on China. This
would force all markets (and companies) to “choose” between China and Western economies.
In retaliation, China could block exports of raw materials and goods that are crucial to Western
economies, such as rare earths. Such a step would have disastrous economic effects and would force
companies to operate two supply chains and endure disruptions.

5 © The Economist Intelligence Unit Limited 2023

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