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A US stockmarket crash and widespread social unrest are the two most likely threat scenarios to happen in 2022, significant events which could derail world security and melt down economies, a new report has predicted.

Worsening relations between Washington and Beijing and a property crash in China also figure prominently in the Economist Intelligence Unit’s (EIU) Risk Outlook 2022 report, with both deemed “high” probability events.
The Economist Intelligence Unit has summarised 10 key risks that threaten to derail world security in 2022.
The Economist Intelligence Unit has summarised 10 key risks that threaten to derail world security in 2022. (Economist Intelligence Unit)
An interstate cyber war affecting major economy infrastructure was, of the 10, ranked least likely to unfold.
The EIU expected post-COVID-19 recovery to continue in 2022, with global gross domestic product to expand by 4.1 per cent.

However, the rebound will mask great variations in the pace of recovery across different regions, the report said.

These 10 threats could jeopardise global security next year.

The aircraft carrier USS Ronald Reagan and the guided-missile destroyer USS Milius conduct a photo exercise with Japan Maritime Self-Defense Force ships.
The aircraft carrier USS Ronald Reagan and the guided-missile destroyer USS Milius conduct a photo exercise with Japan Maritime Self-Defense Force ships. (AP)

1. Worsening US-China ties force full decoupling in global economy

Probability: High

Impact: Very high

The world’s two biggest superpowers, the US and China, are vying for global influence and dominance.

“US president Joe Biden, is trying to convince ‘like-minded’ (mostly Western) countries to collaboratively put pressure on China,” the report said, including restrictions in the areas of trade, technology, finance and investment, along with sanctions, forcing some markets and companies to choose sides.

The report warns this could lead to a “neutral stance becoming economically prohibitive” for third countries, dividing China-supporting and US-supporting economies.

The fallout could heighten uncertainty in global trade and investment.

2. Unexpectedly fast monetary tightening leads to US stock market crash

Probability: Very high

Impact: High

Supply-chain disruptions, higher energy prices, ultra-loose monetary policy all contributed to a sharp uptick in US inflation in 2021, the report said.

This could force the Federal Reserve to start tightening monetary policy, which in turn could lead to a rise in interest rates by mid-2022.

“Accelerated interest-rate increases could be enough to initiate a sharp stockmarket adjustment,” the report warned.

Shares in troubled real estate developer China Evergrande Group and its property management unit Evergrande Property Services have plummeted.
Shares in troubled real estate developer China Evergrande Group and its property management unit Evergrande Property Services have plummeted. (AP)

3. Property crash in China leads to sharp economic slowdown

Probability: High

Impact: Very high

The financial problems striking Chinese property giant Evergrande “represents a serious risk of financial contagion” across China’s economy.

Many of China’s real estate firms are similarly overleveraged, the report said.

If worsening real estate sentiment leads to a string of defaults across China’s real estate sector, Beijing could struggle to contain a broader meltdown.

4. Tighter domestic and global financial conditions derail recovery in emerging markets

Probability: High

Impact: High

The economies of emerging nations are vulnerable to inflationary pressures because of rebounding commodity prices.

“Risks will be especially elevated in countries where indebtedness in foreign currency is particularly high,” the report said, such as Argentina and Turkey.

Brazil, Mexico, Russia, Sri Lanka and Ukraine have all raised monetary policy rates in 2021.

Health officials wearing protective gear prepare to spray disinfectant to help reduce the spread the new coronavirus ahead of school reopening in a cafeteria at a high school in Seoul, South Korea
Health officials wearing protective gear prepare to spray disinfectant to help reduce the spread the new coronavirus ahead of school reopening in a cafeteria at a high school in Seoul, South Korea (Getty)

5. New COVID-19 variants emerge that prove resistant to vaccines

Probability: Moderate

Impact: Very high

The Delta and Mu variants of coronavirus were flagged as examples of COVID-19 mutating and challenging the effectiveness of vaccines.

“One of the main risks for the global recovery is that new, more aggressive Covid-19 variants prove resistant to current vaccines,” the report said.

The report warned of a “perpetual cycle” of booster shots and new vaccines, pointing to no effective vaccines having been developed for HIV/AIDS, despite massive investment and effort.

6. Widespread social unrest weighs on the global recovery

Probability: Very high

Impact: Low

The report warns “a spike in unrest is possible” in 2022 because of the negative effect of the pandemic on incomes and quality of life.

“Traditionally stable” Western states and long-standing authoritarian regimes were both considered vulnerable, with the Middle East, Africa and Latin America most at risk.

Significant unrest can lead to a government collapse, panicking investors and destabilising economies.

A Chinese military H-6K bomber conducts a training exercises above the South China Sea.
A Chinese military H-6K bomber conducts a training exercises above the South China Sea. (AP)

7. Conflict erupts between China and Taiwan, forcing US to intervene

Probability: Low

Impact: Very high

Increasing tensions between China and Taiwan has “raised the risk” of a military conflict in the Taiwan Strait.

“We expect China to refrain from purposefully initiating direct conflict with Taiwan, owing to concerns about US involvement,” the report said, adding that Taiwan’s president has rejected declaring independence as an explicit policy goal.

A conflict would wipe out Taiwan’s economy and “risk drawing in” the US, Australia and Japan.

8. EU-China ties worsen significantly

Probability: Moderate

Impact: Moderate

EU-China relations have slumped since the EU imposed sanctions against China over human rights abuses in Xinjiang.

Ongoing, intensifying sanctions will hurt EU and Chinese companies, the report stated, with implications for the wider global economy.

Flames lick up a tree as the Windy Fire burns in the Trail of 100 Giants grove in Sequoia National Forest, California.
Flames lick up a tree as the Windy Fire burns in the Trail of 100 Giants grove in Sequoia National Forest, California. (AP)

9. Severe droughts prompt a famine

Probability: Low

Impact: Moderate

Droughts are expected to become more frequent.

“Water shortages in southern Europe, the Mediterranean, the south-western US and southern Africa—the breadbaskets of the world—would have short- and long-term consequences for the global economy,” the report said.

Multiple crop failures will drive up global commodity prices, with impacts on global inflation.

The report pointed to intense heatwaves in Canada and the US this year, and bushfires striking Greece, Turkey and Spain.

10. Inter-state cyberwar cripples state infrastructure in major economies

Probability: Moderate

Impact: Low

Expect an uptick in cyber-attacks, the report warned.

Attacks on critical infrastructure, such as food and energy supply lines, or knocking out a national power grid, destabalises national economies, with potential global impact.

“Tit-for-tat cyber-attacks” will become commonplace, with geopolitical competition continuing to “heat up” in the coming years.

Source: 9News

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