The annual World Economic Forum is set to begin, but already there’s a sea of reports and commentary flowing from the confab in Davos. One of the highlights is Global Risks 2011 Sixth Edition. As a preview, here are some excerpts from the report:

A Risky World…
“The world is in no position to face major, new shocks. The financial crisis has reduced global economic resilience, while increasing geopolitical tension and heightened social concerns suggest that both governments and societies are less able than ever to cope with global challenges. Yet, as this report shows, we face ever-greater concerns regarding global risks, the prospect of rapid contagion through increasingly connected systems and the threat of disastrous impacts. In this context, Global Risks 2011, Sixth Edition reveals insights stemming from an unparalleled effort on the part of the World Economic Forum to analyse the global risk landscape in the coming decade.”
Two Big Risks…
“Economic disparity and global governance failures emerged from the Forum’s Global Risks Survey 2010 as the two most highly connected risks and were perceived as both very likely and of high impact… They influence the context in which global risks evolve and occur in two critical ways: first, they can exacerbate both the likelihood and impact of other risks; second, they can inhibit effective risk response.”
Five risks to watch…
“Five risks have been designated as ‘risks to watch’, as survey respondents assessed them with high levels of variance and low levels of confidence while experts consider they may have severe, unexpected or underappreciated consequences:
• Cyber-security issues ranging from the growing prevalence of cyber theft to the little-understood possibility of all-out cyber warfare
• Demographic challenges adding to fiscal pressures in advanced economies and creating
severe risks to social stability in emerging economies
• Resource security issues causing extreme volatility and sustained increases over the long run in energy and commodity prices, if supply is no longer able to keep up with demand
• Retrenchment from globalization through populist responses to economic disparities, if emerging economies do not take up a leadership role
• Weapons of mass destruction, especially the possibility of renewed nuclear proliferation
between states.”
Graphing Risk Perceptions…

Red Ink Risk…
“There is a high degree of risk and uncertainty regarding how much debt can be borne by the public sector, particularly in advanced economies, before the debt burden seriously impacts economic growth through increasing borrowing costs, politically unacceptable amortization payments, and the subsequent need for fiscal austerity.”

Coordination Risk…
“Lack of agreement on how to reduce global imbalances makes it difficult to create joint responsibility at the international level. Diverging interests in the short-term are driven by both political and economic factors. While advanced economies see continuing imbalances as economically unsustainable, emerging economies running trade surpluses fear that adjustments involving currency appreciation would hurt employment in export sectors and potentially threaten social stability. Political leaders in advanced economies are under increasing pressure to seek short-term solutions – but uncoordinated actions, such as simultaneous currency depreciation by multiple countries, could create new risks. For all countries to attempt to devalue their currencies at the same time would only have negative impacts.