Risk Scenarios That Could Reshape the Global Economy in 2023

The Economist Intelligence Unit (EIU) produces an annual quantitative and qualitative assessment of economic, political and regulatory risks that help readers evaluate potential shifts in a country's operating environment. As this year's report explains, "In 2022 the global repercussions of Russia's invasion of Ukraine shifted global concerns away from coronavirus-related health issues and towards growing political, security and macroeconomic risks." The UK-based organization expects "that ripple effects from the war in Ukraine, global monetary tightening and an economic slowdown in China will weigh on the economy in 2023, with global growth slowing to only 1.6%." The EIU explains that its "white paper explores some of the risks that could lead to even slower growth, or even, trigger a global recession."

Below are ten risk scenarios that could reshape the global economy in 2023:

1. Cold winter exacerbates Europe's energy crisis (high probability; very high impact)
2. Extreme weather adds to commodity price spikes, fueling global food insecurity (high probability; high impact)
3. Direct conflict erupts between China and Taiwan, forcing US to intervene (moderate probability; very high impact)
4. High global inflation fuels social unrest (very high probability; moderate impact)
5. New variant of coronavirus, or another infectious disease, sends global economy back into recession (moderate probability; very high impact)
6. Inter-state cyberwar cripples state infrastructure in major economies (moderate probability; very high impact)
7. Further deterioration in West-China ties forces full decoupling of global economy (moderate probability; high impact)
8. Aggressive monetary tightening leads to global recession (moderate probability; moderate impact)
9. China's zero-covid policy leads to severe recession (low probability; high impact)
10. Russia-Ukraine conflict turns into global war (very low probability; very high impact)

While I agree with the high placing of cold winter exacerbating Europe's energy crisis, I am more concerned with the risk of extreme weather adding to commodity price spikes which will result in exasperating global food insecurity. "Climate change models point to an increased frequency of extreme weather events," explains the EIU. "So far these have been sporadic and in different parts of the world, but they could start to happen more synchronously and for prolonged periods." Moreover, "Severe droughts and heatwaves in Europe, China, India and the US in 2022 are contributing to rising prices of some foodstuffs. In addition, the war between Russia and Ukraine (two of the world’s largest agricultural exporters) has led to severe price spikes and risks creating global shortages of grains and fertilizers (which are crucial for harvests) in 2023." The report worryingly warns that "The world could face a prolonged period of crop shortages and skyrocketing prices, raising the risk of food insecurity (or even famine).

Just as high food prices was a contributing factor that a series of anti-government protests, uprisings and armed rebellions that spread across much of the Arab world in the early 2010s, global food prices are again high could lead to social unrest. As the report notes, "Persistent inflationary pressures, caused by supply-chain disruptions and Russia's invasion of Ukraine, are pushing up global inflation, which is at its highest level since the 1990s. If inflation rises much higher than wage increases, making it hard for poorer households to purchase basic staples, it could spark social unrest." The report adds that "In an extreme scenario, protests could push workers in major economies and employed by large manufacturers to coordinate large-scale strikes demanding higher salaries that match inflation. Such movements, similar to those that have affected critical services in the UK (ports, postal services, barristers and railways), could paralyze entire industries and spill over to other sectors or countries, weighing on global growth.

Finally, my colleagues and I are closely watching the further deterioration in West-China ties that may result in the full decoupling of the global economy. "Western democracies, notably the US and the EU, are concerned about China's support to Russia following the invasion of Ukraine," the report explains. "In parallel, China is concerned about US-Taiwan relations and efforts by the US to convince other democracies to pressure it using restrictions on trade, technology and finance." Moreover, "The EU has also taken an increasingly confrontational stance towards China's human rights abuses in Xinjiang, unequal treatment of EU and Chinese firms, and its subsidy-led industrial model." The report adds that "In an extreme scenario, China could initiate military maneuvers in the South China Sea (most likely in Taiwan), exacerbating tensions and pushing the West to unite in imposing sweeping trade and investment restrictions on China. This would force some markets (and companies) to choose sides." China could, in retaliation, "block exports of raw materials and goods that are crucial to Western economies, such as rare earths. This would have disastrous economic effects and force companies to operate two supply chains while fearing operational disruptions."

Which risk scenarios do you think will affect your business? What strategies are you implementing to make your company resilient to those risks?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

The EIU Presents Its Ten Risk Scenarios That Could Impact Global Growth and Inflation in 2022

"We expect the post-pandemic recovery to continue in 2022, with global GDP expanding by 4.1%," according to a paper published by The Economist Intelligence Unit (The EIU). "However, this rebound will mask great variations in the pace of recovery across different regions. In addition to this baseline outlook, we are also tracking a host of scenarios that could derail the post-pandemic recovery and have an effect on global business operations." Through this paper, The EIU aims to summarize some of these key risks that could impact global growth and inflation.

Below are The EIU's top ten global risk scenarios for 2022:

1. Worsening US-China ties force a full decoupling in the global economy;
2. An unexpectedly fast monetary tightening leads to a US stockmarket crash;
3. A property crash in China leads to a sharp economic slowdown;
4. Tighter domestic and global financial conditions derail the recovery in emerging markets;
5. New Covid-19 variants emerge that prove resistant to vaccines;
6. Widespread social unrest weighs on the global recovery;
7. Conflict erupts between China and Taiwan, forcing the US to intervene;
8. EU-China ties worsen significantly;
9. Severe droughts prompt a famine; and
10. An inter-state cyberwar cripples state infrastructure in major economies.

The EIU explains that it tracks "these risks and score them in terms of probability (how likely are they to happen?) and impact (if they happen, how great is the impact on businesses?)." Furthermore, the UK-based organization combines "these probability and impact scores to produce an intensity rating to support our clients in their ongoing risk monitoring requirements, helping them to answer the question, 'how worried should we be?'. Below is a snapshot of scores for our ten global risk scenarios."

Worsening US-China ties force a full decoupling in the global economy is a risk scenario that concerns me the most. As The EIU explains:

The US and China are vying for global influence. The US president, Joe Biden, is trying to convince "like-minded" (mostly Western) countries to collaboratively put pressure on China. This has included restrictions in the areas of trade, technology, finance and investment, along with sanctions, forcing some markets (and companies) to choose sides. Although most evident in the technology arena, there is a risk that this strategy will encompass industrial or consumer-facing sectors. In an extreme scenario, this could lead to a neutral stance becoming economically prohibitive for third countries, dividing China-supporting and US-supporting economies. Full global economic bifurcation would force companies to operate two supply chains with different technological standards. Implementation of 5G telecommunications networks could be postponed in some countries, and sanctions by China would heighten uncertainty surrounding global trade and investment.

Unexpectedly fast monetary tightening leads to a US stockmarket crash is another risk scenario that I am watching closely. The EIU points out that "Supply-chain disruptions, higher energy prices, ultra-loose monetary policy and a recovering real economy have all contributed to a sharp uptick in US inflation in 2021." The paper adds that "Although many of these factors are likely to ease as the US economy rebalances post-pandemic—indicating that spiking inflation will not be long-lasting—they nonetheless give cause for the Federal Reserve (Fed, the central bank) to start tightening monetary policy gradually by tapering its asset purchases. However, if slow and clearly signaled monetary tightening fails to rein in inflation in the medium term, a rise in interest rates by mid-2022 may be necessary." Moreover, "Given that US stock price/earning ratios are currently higher than before both the 1929 and the 2007-08 crashes, accelerated interest-rate increases could be enough to initiate a sharp stockmarket adjustment. The high number of retail investors means that falling stock prices would weigh heavily on consumer spending, possibly halting the US economic recovery and risking a recession."

And those who live or hold business interests in emerging markets should be mindful that tighter domestic and global financial conditions could derail the recovery in these markets. The EIU says "Inflationary pressures stemming from rebounding commodity prices have already led some emerging markets, including Brazil, Mexico, Russia, Sri Lanka and Ukraine, to raise monetary policy rates in 2021." What is more, "In a context where sovereigns have grown increasingly leveraged as a result of the pandemic, interest-rate normalization will feed into higher debt-service costs for governments. This could ratchet up pressure for aggressive pro-cyclical fiscal consolidation that ultimately sets back the recovery of emerging countries. In particular, the potential for US bond yields to rise faster than expected in the coming months could drive higher emerging-market risk premiums, leaving them vulnerable to sudden drops in capital inflows." The paper crucially notes that "[r]isks will be especially elevated in countries where indebtedness in foreign currency is particularly high, for example in Argentina and Turkey, where bond sell-offs could trigger currency and/or debt crises."

Which risk scenarios concern you the most? What strategies are you employing to make your company resilient should any of these risks materialize? 

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Report Says the Rising Incidence of Cardiovascular Diseases Poses a Substantial Challenge to Asia-Pacific Markets

"Cardiovascular diseases (CVDs), disorders of the heart and blood vessels, are the leading global cause of death annually," says a published by The Economist Intelligence Unit (The EIU) and EIU Healthcare, its healthcare subsidiary. Commissioned by Amgen, an American biopharmaceutical company, Protecting the heart: Preventing cardiovascular disease in Asia further explains CVDs "levy a substantial financial toll on individuals, their households and the public finances. These include the costs of hospital treatment, long-term disease management and recurring incidence of heart attacks and stroke. They also include the costs of functional impairment and knock-on costs as families may lose breadwinners or have to withdraw other family members from the workforce to care for a CVD patient. Governments also lose tax revenue due to early retirement and mortality, and can be forced to reallocate public finances from other budgets to maintain an accessible healthcare system in the face of rising costs."

The report provides a study of the economic impact of CVD risk factors on the following Asian markets: Australia, China, Hong Kong, Japan, Singapore, South Korea, Taiwan and Thailand. Below are its key takeaways:

"The rising incidence of CVD poses a substantial challenge to Asia-Pacific markets. The rising incidence and expected treatment costs of CVDs challenge the sustainability of many healthcare financing models in the region. Early retirement and functional disability from rising CVD incidence also erode the tax base and put pressure on social service budgets. This can lead to fiscal constraints that have a regressive impact on citizens. Reducing risk factor incidence, which could reduce and even prevent CVDs, is a more preferable strategy.

"The four main modifiable cardiovascular risk factors pose a communications challenge for governments and health agencies. Because the effects of the four risk factors on cardiovascular health—smoking, hypertension, obesity and high cholesterol— can accumulate over many years, individuals have little to no knowledge that they have increased their risk for CVD until symptoms occur. This makes preventing these risk factors all the more challenging.

"Hypertension is the risk factor that contributes the highest cost. Hypertension is exerting the greatest population attributable cost across the eight markets with an estimated total of US$18bn annually, according to Economist Intelligence Unit estimates. Across the other estimated annual risk factor costs, high cholesterol contributes US$15bn, smoking US$11bn, and obesity $8bn.

"The costs of CVDs are not fixed. Greater awareness and policymaker attention can substantially reduce CVD costs as many obstacles and corresponding solutions have been identified as effective. For example, the World Heart Federation provides a number of roadmaps to manage CVD risks brought on by hypertension, high cholesterol and smoking. For the two “silent” risk factors, the pathways are similar: improve patient and physician awareness of key risk factors, increase access to diagnostic testing, empower patients with knowledge, and provide professional support and affordable drug access to manage their risks.

"Policy options for primary prevention include choice 'nudges.' Policy options for primary prevention of all risk factors include 'nudges' to positively influence dietary choices, such as improved food labeling or partnerships with companies to encourage food reformulation to remove unhealthy ingredients. Investment in green spaces in urban areas and subsidized access to health facilities can also encourage physical activity.

"Effective secondary prevention can also significantly affect costs and outcomes. The recurrence rates for people suffering from a CVD event are high. For instance, in Australia, the risk of a subsequent stroke is 43% in the ten years following the first event, and the mortality rates for known sufferers of CVDs are substantially higher than those not at high risk. Across the span of a first CVD event and one’s death, the cost for disease management and the treatment of secondary events can be significant. Prioritizing at-risk groups can also drive positive impacts on CVD cost management."

Based on my experience, I agree that "[t]he Asia-Pacifc's CVD burden sits within the broader context of a rise in NCDs (noncommunicable diseases), due partly to ageing populations and partly to economic transition. It is a threat to the health and financial security of citizens and a burden on the public finances. Efforts to increase access to healthcare over recent decades will be undermined if cost-cutting measures are required to balance the books."

The report encouragingly concludes that "many risk factors for CVDs are modifiable through primary and secondary preventions, across behavior, lifestyle and medical domains. Looking forward, a powerful CVD action plan is one that targets multiple points along the 'continuum' from primary prevention to cost-effective treatment methods and secondary prevention. Innovation in service delivery and greater leveraging of data, digital technology and wearable devices can also help optimize CVD detection and management in cost-effective ways."

What solutions are you seeing that are reducing the incidence of CVDs?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Learning About Business Opportunities in Taiwan

Photo of the Taipei skyline:
http://ow.ly/4n5sQi

Did you know Taiwan is the tenth largest trading partner with the United States? Bilateral trade between the U.S. and Taiwan reached $67.4 billion in 2014, according to U.S.-Taiwan CONNECT. While most Americans are aware of the strong trade relations that exist between the U.S. and mainland China, many people, myself included, are unaware of the business opportunities available in Taiwan for American companies. An event sponsored by the Trade Development Alliance of Greater Seattle (TDA) explored the cross-border relations between China and Taiwan, as well as an examination of the market opportunities that exist for companies based in the Greater Seattle area. This post addresses some of the points presented during the Apr. 19, 2016 event in Seattle, Wash.

Andy Chin, Director-General of the Taipei Economic and Cultural Office in Seattle, talked about how U.S. products are well-represented in the Taiwanese market. Mr. Chin cited examples such as Boeing's long-standing relationship with Eva Airways with the former selling commercial aircraft to the latter and Microsoft's success of not just manufacturing its products in Taiwan, but commercializing its cloud-based services to the island with a population of 23 million.

Upon performing some research for this post, I learned of another dynamic between Microsoft and Taiwan such as the collaboration between Microsoft Research Asia and Taiwanese academia that "began in 2003 with a partnership between National Taiwan University, National Tsing Hua University, and National Chiao Tung University. This alliance led to programs that foster new talent, curriculum innovation, and academic exchanges. In 2006, Microsoft Research Asia extended this collaborative partnership to additional institutions, such as National Cheng Kung University in Taiwan."

Joe Borich, Senior Advisor with Nyhus Communications, said U.S. products are well-represented in the market and noted that Taiwan is a good target market for high-quality, differentiated products and commodity items. He also remarked how Taiwan possesses a comprehensive modern legal system with an independent judiciary. Lastly, according to Mr. Borich, Taiwan contains a number of excellent higher education institutions that produce graduates who are well-prepared for the challenges of working in a global marketplace.

Seattle has maintained a long and storied relationship with Taiwan including the former's sister city relationship with Kaohsiung, Bill Stafford, a Senior Advisor with TDA, explained. He also commented that Taiwan serves as a good location to export to emerging markets throughout Asia. Mr. Stafford further said economic ties between Taiwan and mainland China will continue to improve with the latter increasing its foreign investments in Taiwan over the next few years.

According to the Doing Business in Taiwan: 2015 Commercial Guide for U.S. Companies, a report produced by the U.S. Commercial Service in Taiwan, "Taiwan is a thriving democracy, vibrant market economy, and a highly attractive export market, especially for U.S. firms." Moreover, according to the report, "Mainland China (including Hong Kong) is Taiwan's largest trading partner, accounting for 26.7% of total trade and 18.1% of Taiwan's imports in 2014. The United States is Taiwan's second largest trading partner, accounting for 10.6% of total, including 10% of Taiwan's imports."

The report also provides an overview of the sectors ideal for U.S. export and investment in Taiwan. I was pleased to read: "The Taiwan authorities have identified cloud and mobile computing as the most promising sectors in the Taiwan’s computer software and service industries." The report includes business application software and Software as a Service (SaaS) in its list of Sub-Sector Best Prospects and explains "the Taiwan authorities have identified cloud and mobile computing as the most promising sectors in the Taiwan’s computer software and service industries."

On the topic of openness to foreign investment, the Doing Business in Taiwan report says:

Strategically located between Northeast and Southeast Asia, Taiwan is an important hub for regional and global trade and investment, especially in the high-technology industry. Indicative of its developed and open investment environment, Taiwan ranks in the upper tenth percentile of major global indices measuring ease of doing business, economic freedom, and competitiveness. Taiwan's investment climate has improved in recent years with expanded cross-Strait trade with mainland China and expansion trade links with other partners in the Asia Pacific region, as well as reforms to enhance protection of intellectual property rights and rationalize other investment-related regulations.

My colleagues and I at ROI3 are in the early stages of learning about the opportunities that exist in Taiwan for our SaaS solution, which provide smartphone and tablet users with the ability to learn English language skills and use of the language in business, legal, medical, aviation, and other professional settings. Do you have any advice or lessons learned of doing business in Taiwan?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.