Home COVID-19 Ten risks to the global economy and stability in 2021

Ten risks to the global economy and stability in 2021

Bart W. Édes
Much rides on the success of COVID-19 vaccine distribution
Senior Associate, Center for Strategic and International Studies
A syringe, tissue and surgical mask laid atop a world map

The COVID-19 pandemic, and the economic crisis that it precipitated, have shaken the world and continue to exact a heavy toll. The rapid discovery of vaccines has generated optimism about the near-term future even as the virus continues to kill thousands daily and hamstrings economies.

COVID-19 is contributing to several significant threats to the global economy and stability in 2021. Following are ten risks that warrant particular attention.

The vaccine fails to deliver

Great hope surrounds the new vaccines developed (and being developed) by Pfizer/BioNtech, Moderna, Sinovac Life Sciences, and others. It is widely accepted that we cannot get on with a life resembling that which we had in 2019 and before until large swaths of the population are vaccinated. Governments will maintain measures that mandate social distancing and limit mingling with people across borders well into 2021. In the meantime, many businesses and entire economic sectors are struggling mightily. They are eager for an end to restrictions on commerce and mobility.

Distribution of COVID-19 vaccines is in its infancy and there are not enough doses to go around. Vaccines typically have side effects and not everyone reacts the same to them. Illnesses or deaths attributed, rightly or wrongly, to receiving one of the new COVID-19 vaccines could lead to a pause in delivery. The complex vaccine distribution chain is vulnerable to a myriad of failings, including intentional disruption by antivaxxers or others seeking to create chaos. With so much riding on the success of this grand effort, effective distribution of COVID-19 vaccines is the most consequential risk confronting the world in 2021.

Cybercrime accelerates in a remote working world

Fraud, theft and extortion carried out through computers has become a growing source of concern to private and public organisations. Cybercrime Magazine forecasts that the costs of such cybercrime will reach an extraordinary $6 trillion in 2021 – double the figure for 2015. This includes the damage and destruction of data, stolen money, theft of personal and financial data, restoration of hacked data and systems, and a litany of other costs. The pandemic has heightened cybercrime risks by linking central computer systems with home-based and mobile workers whose IT security arrangements are less stringent than at the office. Resourceful hackers have noted the new opportunities to break into corporate computer systems.

Partisanship curtails effective governance in the US

While US President-elect Biden has delivered a unifying message all year, his losing opponent took unprecedented steps to overturn the will of the electorate. Outgoing President Donald Trump, and a significant portion of the Republican Party, touted the unfounded claim of “a stolen election.” This pre-inauguration saga does not bode well for improvements in the viciously partisan environment in Washington, DC.

Even if the Democrats are able to wrest control of the US Senate by winning the two run-off races in Georgia in January, their razor-thin margin in both congressional chambers would provide little room for manoeuvre. Raw and uncompromising partisanship, reinforced by irresponsible media, threaten the ability of the new administration to bring stability back to Washington and engage constructively on the world stage.

Growing debt crushes low-income states

The crisis has driven up debt levels in developing countries. Although the G20 approved a suspension of debt payments by 73 low-income countries until June 2021, private creditors have shied away from participating in the arrangement, while loans made by international financial institutions are exempt. Numerous eligible countries have chosen not to accept the offer of relief as they see modest benefits owing to the composition of their debt, or because they fear credit downgrades.

According to the 2021 edition of the International Debt Statistics report, the total external debt of the 73 eligible countries has reached a record $744 billion. Zambia has defaulted on its debt, and other nations are under extreme stress. The squeeze on public finances in the world’s poorest states limits their capacity to respond to the human costs of the crisis. This situation will increase the salience of next risk…

Inequality spurs popular uprisings

The pandemic has wreaked havoc on economies and labour markets, exacerbating poverty and inequality. World Bank economists forecast that COVID-19 may force 115 million people into extreme poverty worldwide. The ILO estimates that global working hour losses in the fourth quarter of 2020 will total 245 million full-equivalent jobs. Meanwhile, those with the means to invest in booming stock markets, or who own or run companies prospering during the crisis, are becoming richer. Frustration with authoritarianism, corruption, joblessness, lack of opportunity, and ethnic and religious differences will fuel unrest in the Middle East. Several South American countries are also sitting on powder kegs of social discontent.

China-US differences become entrenched

US President-elect Biden is expected to maintain his predecessor’s tough stance on China’s trade, subsidy and business practices, while more vocally condemning Beijing’s human rights practices. Taiwan, Hong Kong and the South China Sea remain flashpoints. For his part, Chinese President Xi intends to encourage domestic consumer demand, strengthen internal supply chains, and intensify self-reliance in critical technologies, thereby contributing to a partial decoupling of the world’s two biggest economies. Chinese wolf warrior diplomacy will ensure defiance in the face of criticism about violating international norms.

The rest of the world will suffer if the US and China settle into a post-pandemic cold war, compel third countries to choose sides, and fail to find common ground on global problems requiring cooperation.

Stormy weather inflects more damage

In 2020, the US experienced a record number of weather and climate disasters causing more than $1 billion in damage. Australia suffered through an unusually intense bushfire season. Monsoon rains flooded a broad expanse of land and displaced millions in South Asia. Other countries, like China and Vietnam, also suffered through major weather events. The World Meteorological Organization reports that 2020 will end up being one of the hottest years on record.

According to the United Nations Office for Disaster Risk Reduction, the number of natural disasters in the world was 75% higher between 2000 and 2019 than in the previous two decades. In the coming years, the world is likely to experience more droughts, heatwaves, and flooding, as well as more intense storms. For 2021, we can anticipate another year of costly natural disasters due in part to creeping climate change.

The crisis spawns more terrorism

Terrorism is an enduring risk that may be elevated by the current global crisis. Drivers of attacks could include Israel’s establishment of diplomatic relations with several Muslim countries, disgruntled domestic opponents of the new US administration, and a breakdown of peace negotiations in Afghanistan. The ongoing, multifaceted conflict in the Sahel will continue to affect several countries, with the stability of Burkina Faso and Mali threatened. As quoted in the Arab News, Brig. Ed Butler, a former commander of British forces in Afghanistan, warns that more terrorist groups are trying to secure chemical weapons, and that the pandemic may be exposing more youth to online radicalisation.

Bankruptcies threaten China’s growth

China has emerged on the other side of the pandemic, and its economy is growing. The Asian Development Bank forecasts a 7.7% rise in the country’s gross domestic product in 2021. Such growth could help spur the global economy rebound. Yet this hopeful scenario is threatened by a faltering Chinese property market – according to data from China’s court system, 228 real estate companies went bust in the first half of this year.

Separately, Fitch Ratings reported that between January and October 2020, state owned enterprises (SOEs) in different lines of business defaulted on a record 40 billion yuan ($6.1 billion) worth of bonds – about as much in the previous two full years combined. A collapse in real estate prices, or acceleration of defaults among SOEs, could leave the domestic financial system vulnerable and slow the pace of economic growth, with implications for the global economy.

Disinformation stirs trouble

CHEQ, the internet cyber-security company, estimates that the direct cost of deliberate sharing of false or manipulated information intended to deceive and mislead audiences to cause harm—or for political, personal or financial gain—totalled $78 billion last year. The estimate also includes the price paid by businesses and governments to counter misinformation.

In 2021, media eschewing traditional norms of responsible journalism will continue to play loose and fast with the facts to attract eyeballs with sensational reporting. Disinformation campaigns threaten to undermine democratic institutions, distort elections, tarnish the reputations of businesses, and discourage large numbers from taking a COVID-19 vaccine, thereby costing lives.

What else to watch

If the world somehow averts major disruption in the above-mentioned areas, it may still encounter trouble with a messy Brexit, higher inflation, new waves of desperate migrants, water shortages, India-China border squabbles, or miscalculation by a provocative North Korea.

This piece was first published on Medium, and can be read here.

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Senior Associate, Center for Strategic and International Studies

Bart is an experienced international trade and development policy specialist analysing transformative trends reshaping Asia and the world. He is a former senior staff member of the Asian Development Bank and principal administrator at the Organisation for Economic Co-operation and Development. Bart is author of the new book, Learning from Tomorrow: Using Strategic Forecast to Prepare for the Next Big Disruption.

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