“Cost of living crisis” becomes the biggest risk
2023-01-18
■ "Cost of living crisis" is listed as the top short-term risk
■ Inflation has become a foregone conclusion, and fears of financial tightening and fiscal deterioration have intensified.
The annual meeting of the World Economic Forum (WEF) (commonly known as the Davos Forum) will be held from the 16th to the 20th. Previously, WEF released the 2023 version of the Global Risk Report on the 11th, which analysed various threats faced by the international community. As the material for discussion at the annual meeting, the report reflects the views of more than 1200 people, including intellectuals, policy makers and industry leaders. The report divides global risks into the short term of the next two years and the long term of the next 10 years. The top three long-term risks are (1) the failure of climate change mitigation measures, (2) the failure of climate change adaptation, and (3) natural disasters and extreme abnormal weather. Six of the top ten are related to climate change. On the other hand, the top three short-term risks are (1) cost-of-living crisis, (2) natural disasters and extreme abnormal weather, and (3) geopolitical opposition.
Let's examine the significance of "cost of living crisis" being listed as the first short-term risk. In 2022, Russia invaded Ukraine, resulting in problems in the supply of food and energy. In order to curb domestic prices, many countries adopted restrictions including the prohibition of food and energy exports. As long as the situation in Ukraine does not change, the concerns about supply constraints will disappear, and the rise of food and energy prices will exert pressure. In addition, with the easing of China's zero-crown policy, demand increases. If inflation outside the service sector is also sticky, it may lead to the long-term financial tightening. In this way, when the housing loan interest rate reaches a high level, the rent inflation will follow, and the housing cost burden of households will increase.
The high cost of living such as food, energy and housing will lead to the decline of real income, namely the deterioration of living standards. It was pointed out that although some countries supported by expanding finance, the result might lead to financial deterioration and insufficient investment in the future. With the development of globalization, the era of low inflation is becoming the past. With the stability of inflation, the tendency of financial tightening and the fear of fiscal deterioration will continue.