Marsh has published its 2023 Political Risk Report, outlining the major shifts and trends in the global political and economic landscape that will impact multinationals in the coming year.
The report, published by Marsh Specialty, identifies four areas where increasing risk threatens global trading, security, and investment environments into 2023. These are persistent political instability; economic retrenchment; competition for strategic resources; and supply chain diversification. The report also highlights substantial global economic growth drivers that Marsh believes present opportunities that outweigh these risks, if managed properly.
According to the report, the global political and economic environment is likely to remain fragile throughout 2023, as a number of factors work in concert to compound the impact of global risks. For example, persistent political instability, especially when compounded by the impact of inflation, threatens the economic and investment environment and, in some cases, the societal structure of emerging markets.
What are polycrises and how do they impact political risks?
The World Economic Forum's Global Risks Report 2023, published in partnership with Marsh McLennan and others, calls this compounding effect of related global risks ‘polycrises’, noting that such polycrises have turned the focus of nations inward. The Political Risk Report identifies this inward focus on economic security, which often comes at the expense of free trade, as another major shift threatening global trade, security, and investment, and warns that decisions made by key economic powers on various issues — ranging from fertilizers and microchips to the energy transition — will continue to have global repercussions.
The perceived level of current risk exceeds actual risk levels
Despite the current elevated risk environment, there are clear signs that the perceived level of risk exceeds actual risk levels and that at least four significant global economic growth drivers could fuel economic recovery and improve security. According to the report, the lockdown backlog of infrastructure investment points to a rise in future activity and expansion globally, while the push to meet 2030 net-zero energy transition goals will see a range of innovative investment activity. The need to diversify supply chains to achieve greater food and energy security will continue to attract investment opportunities, as will the substantial rise in government defense spending worldwide to support allies, counter threats, and accelerate the sector’s modernization.
“While it may be unnerving, there are many opportunities for businesses and investors to grow in today’s elevated geopolitical and economic risk environment,” said Nick Robson, Global Head of Credit Specialties, for Marsh Specialty. "If the risks are identified, managed, and mitigated effectively, the prospects for short, medium, and long term growth frequently outweigh the risks presented by short term volatility.”