WITH countries all over the world now more linked through trade and technology, fiscal imbalances and economic shocks may have greater impact on economies to the point of reversing gains brought by globalization.

In emerging economies like the Philippines, which still enjoy a relatively young population, the risks include slow economic growth and reduced demand from developed countries.

In the seventh edition of the Global Risks Report (GRR), the World Economic Forum (WEF) said the world has become more vulnerable to these shocks today. These shocks are also expected to become more prevalent in the next 10 years.

Countries who joined the World Trade Organization (WTO) essentially agreed to globalization. Created in January 1995, the WTO’s main thrust is to open and liberalize trade for all.

“The world’s vulnerability to further economic shocks and social upheaval risk undermining the progress that globalization has brought,” the WEF said in the report.

“Chronic fiscal imbalances and severe income disparity are the risks seen as most prevalent over the next 10 years. These risks in tandem threaten global growth as they are drivers of nationalism, populism and protectionism at a time when the world remains vulnerable to systemic financial shocks, as well as possible food and water crises,” WEF added.

WEF said these are the findings of a survey of 469 experts and industry leaders. This also indicated a shift of concern from environmental risks to socioeconomic risks compared to a year ago.

“Respondents worry that further economic shocks and social upheaval could roll back the progress globalization has brought, and feel that the world’s institutions are ill-equipped to cope with today’s interconnected, rapidly evolving risks,” the WEF said.

Unlike developed economies, countries like the Philippines, Indonesia, Vietnam, Mexico, Peru and the BRIC countries of Brazil, Russia, India and China, still enjoy a demographic dividend that means a large young population.

However, the risks of slow economic growth and sluggish global demand for its exports could prevent these countries from truly benefiting from their demographic gift.

In the Philippines alone, economic growth has been sluggish at an average of 3.6 percent in the January to September 2011 period on the back of slow government spending and lackluster export growth. Full-year growth estimates will be released by January 30 but is not expected to breach 4 percent, economists and the National Economic and Development Authority (Neda) earlier said.

“These nations’ ability to seize the opportunity is far from guaranteed, given sluggish global growth and reduced demand from developed economies. Rapid economic growth in emerging economies has fuelled an impatient expectation that a rising tide will lift all boats, but social contracts may not be forged quickly enough to rectify increasingly visible economic inequalities and social inequities,” the WEF said.

The report also describes 50 global risks, and groups them into economic, environmental, geopolitical, societal and technological categories. Within each category, the most significant systemic risk is singled out.

The report also highlights “X Factors”—emerging concerns with still unknown consequences that warrant more research. These include a volcanic winter, cyber neotribalism and epigenetics.

Some of the risks discussed in the report include environmental risks brought about by greenhouse-gas emissions, geopolitical risks, such as global financial failures, unsustainable population growth, and technological risks through cyber threats and digital problems. 

Given these risks, the WEF said governments could no longer rely on 20th century policies, norms and institutions to protect individual economies.

The safeguards that were put in place are also exposed to technological, financial, climate change and resource-depletion risks that will make the world’s people highly vulnerable.

The report was published in cooperation with Marsh & McLennan Companies, Swiss Re, The Wharton Center for Risk Management and Zurich. The report is the flagship initiative of the WEF’s Risk Response Network.

The Risk Response Network provides private and public sector leadership with an independent platform to better map, monitor, manage and mitigate global risks.