An underestimated global risk

Every year, the World Economic Forum together with Zurich Insurance Group and Marsh & McLennan, publish “The Global Risks Report” and it is pretty much the only worthwhile outcome of the entire forum. While bankers and journalists mingle with billionaires and politicians to discuss the measures that they are not going to take this year to save the planet, the Global Risks Report makes an honest effort to assess the likelihood and impact of potential global catastrophic events.

And every year, I tend to disagree with some of the assessments. While I agree with many of the report’s conclusions, there are always some events that I think are classified as too unlikely to happen – mostly because they are not in the spotlight of media coverage. This year, the report emphasises the risks of a failure to mitigate the effects of climate change yet again. For the third time in a row, the global risks most likely to materialise are extreme weather events, while the risk that would have the biggest impact (but a very low likelihood of happening) concerns weapons of mass destruction. Other risks, like a collapse of the Chinese economy or a meltdown of asset prices, that were the top two most likely risks in 2009 and 2010, have completely vanished from the list. But as we will show in an upcoming in-depth analysis of the Chinese economy, a collapse in China is both more likely and more hurtful than many investors in the West realise.

But another global risk that I want to focus on here is the risk emanating from biological pathogens. It has been 100 years since the Spanish Flu devastated Europe and vast parts of Asia and the US. The 1918 to 1920 influenza pandemic infected an estimated 500 million people around the world and killed c. 50 to 100 million. Mind you, back in 1918 the global population was a mere 1.5 billion. Relative to today’s 7.7 billion people on the planet a repeat of the 1918 influenza would kill c. 250 million to 500 million people! But unlike in 1918, we now have antibiotics and other modern drugs to help limit the death toll from such a disease.

But unfortunately, this is where risks get underestimated, simply because over the last sixty years since the end of World War II we have systematically undermined our ability to fight pandemics. Take antibiotics for instance. The Farm Animal Investment Risk and Return (FAIRR) Initiative specialises in assessing investment risks emanating from the global food and farm animal industry. In their latest report on antibiotics resistance they show that more than 70% of all antibiotics produced globally go to farm animals, often to promote growth and not to fight diseases. The result is a rapid rise in the number of bacteria resistant to antibiotics. The UK government sponsored a review of the impact of antimicrobial resistance in 2014 and found that already then 700,000 deaths per year were due to resistant microbes. The OECD estimates that “superbugs”, i.e. microbes that are resistant to any drug known to mankind, could kill c. 90,000 Britons and c. 1.3 million people in Europe by 2050. Already during the first month of this year, there was a superbug outbreak in the Gaza stripand Glasgow Caledonian University has warned of a potential outbreak of a superbug epidemic in Scotland. And most recently, the UK government announced a 5-year action plan and a 20-year vision to fight antimicrobial resistance in health, animals and the food chain. In this plan, the government commits to goals like cutting the number of drug-resistant infections by 10% by 2025 and reducing the use of antibiotics in humans by 15% and in farm animals by 25%.

And such measures are needed, though likely not enough, because the impact of drug resistant microbes could be devastating. Not only are millions of lives at risk, but FAIRR estimates that the economic impact between today and 2050 could amount to $100 trillion. If that sounds a lot, that’s because it is. It would amount to a reduction in global GDP growth by about 2.4% per year on average. The OECD expects global GDP growth to average 2.6% per year from today until 2050. In other words, the impact from drug resistance microbes has the potential to wipe out the equivalent of three decades of economic growth. It is high time topics like this are no longer discussed on the back pages of science magazines and newspapers and make it to the front pages, so that politicians and investors take notice. Unfortunately, as experience shows, it will likely take a major catastrophe before politicians and investors wake up and do something about this risk.

Global risk perceptions

Source: World Economic Forum.