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Economic shifts: Emerging risks from structural change

At a glance

  • Key Insights from the World Economic Forum Special report on COVID-19
  • Over the next five articles, we’ll examine each of the chapters of the WEF report
  • This article focusses on the ‘Economic shifts: Emerging risks from structural change’

One in ten UK businesses say they face a high risk of insolvency as a result of the COVID-19 crisis – equating to more than half a million (591,000) companies on the verge of bankruptcy. While just over half (51%) of firms state there is at least a small risk they will become insolvent due to the world-wide pandemic – equating to nearly 3 million British organisations.

Meanwhile, the World Economic Forum (WEF) Special report on Covid-19, reports that almost 350 senior risk professionals, who participated in the COVID-19 Risks Perception Survey, were most worried about four key concerns:

  • Economic shifts: Emerging risks from structural change
  • Sustainability setbacks: Emerging risks from stalling progress
  • Societal anxieties: Emerging risks from social disruptions
  • Technology dependence: Emerging risks from abrupt adoption

Over the next five articles, we’ll examine each of the chapters of the WEF report. This article focusses on the ‘Economic shifts: Emerging risks from structural change’ chapter.

Key takeaways

  • The majority (68.6%) of respondents feared a ‘prolonged’ global recession
  • 8% believed a trend in bankruptcies (big firms & SMEs) and a surge of consolidation was to be expected
  • 9% said industries and sectors would fail to recover in some countries
  • 3% think high unemployment is on the cards, predominantly among young people
  • A build-up of debt is likely to burden government budgets and corporate balances for many years
  • COVID-19 diminished economic activity and is likely to cause the global economy to shift
  • Governments have paid out trillions of dollars in economic support to counter the effects of the coronavirus pandemic
  • Leaders state that emerging economies are at risk of submerging into a deeper crisis as investors return to ‘safe’ havens
  • Firms could face increasingly adverse consumption, production and competition patterns

Looking beyond COVID-19

The WEF report should help us to work towards the new normal, whatever that may look like. While global recovery prospects remain uncertain, understanding the risks should help us to ‘avoid blundering into a weaker version of what we had before’.

History has shown us that things will eventually improve. Economic crises often lead to the relinquishment of ineffective or out-of-date structures and new and more efficient practices emerge in their place – for example, the bursting of the Dotcom bubble. As the internet became a significant part of people’s lives and an essential tool for both organisations and consumers, a huge number of companies emerged, promoting services that harnessed the new digital domain. On 10 March 2000, the Nasdaq index of leading technology shares spiked, bursting the Dotcom bubble. Most of these firms weren’t performing in their customers’ best interests, but had received huge funds from starry-eyed investors. Due to the crash, many of these companies had to close for business. But the crash also paved the way for disruptors, such as retail giants eBay and Amazon. It’s only a matter of time before we start to see history repeating itself and those who survive will be the ones who pivot and innovate in order to meet their customers’ new needs the most.

 

Download the full report

Image © Getty

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