These Are the Biggest Economic Risks Ahead

We asked experts for their views on what poses the greatest threat to the economy. Their responses have been edited for length and clarity.

The biggest economic risk facing the world and in particular Europe today is the energy and food crisis. Firstly, a huge rise in prices makes it unaffordable for many people, not only the poor but also the lower middle class. A second consequence will be a greater risk of starvation in the Middle East and Africa, and energy shortages not just this winter but next winter. This raises the risk of social turbulence in Europe. In the Middle East and Africa, we’ve seen the Arab Spring about 10 years ago, and we know how that led to a lot of political and social turbulence.

Laurence Boone
France’s secretary of state for European affairs

The biggest economic risk is that US consumers begin to expect that prices will continue to rise and they start to make spending decisions based on that assumption. While we haven’t seen expectations become unanchored, that risk grows the longer inflation levels remain elevated. The Fed is doing all we can to keep higher prices from becoming entrenched.

Raphael Bostic
President of the Federal Reserve Bank of Atlanta

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The global community faces broad-based and accelerating environmental degradation, comprising interrelated threats ranging from climate change to biodiversity loss to deforestation to the diffusion of microplastics in oceans and drinking water. Worsening pathogenic threats are only one symptom of humankind’s collision with planetary boundaries. Meanwhile, our domestic political systems and global governance mechanisms seem increasingly unable to meet the existential risks that we face. Nowhere illustrates the obstacles to action better than the United States, where tightening control of government by an inward- and backward-­looking political minority is undermining any hope that domestic policy or global leadership will rise to the challenges of modernity.

The biggest risk at this point of the cycle is the risk of policy mistakes. It will be a delicate task to find the right policy mix that will bring inflation down without triggering a deep and prolonged recession and make supply chains globally more resilient without sacrificing the main benefits we have derived from globalization and free trade.

Tidjane Thiam
Executive chairman of Freedom Acquisition I Corp. and former chief executive officer of Credit Suisse Group AG

The biggest economic risk is “stagflation” of the severe kind, with prices rising persistently and at a rapid clip, yet the world falling into the grip of a deep recession. In this scenario, central banks’ hands would be tied, unable to cushion the growth stumble and thus exacerbating financial stress with high interest rates. We aren’t close to that scenario, but such an outcome has at least become conceivable, and as such it appears that investors’ blindfolds to such tail-risk have started to come off.

Frederic Neumann
Chief Asia economist at HSBC Holdings Plc

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We have a tendency to look at things from the short term, but when we are looking at fairly low rates of growth going forward, we have a longer problem. I am much more worried about the 1.5 years of education lost during the pandemic. The whole region is just not prepared educationally for the kind of technologies that are coming. A third of students in the region meet minimum standards in science and technology, so where are these high-tech entrepreneurs going to come from? We have around 30% of businesses saying they can’t get the workforce they need, and that’s compared to 20% in the world.

William Maloney
Chief economist for the Latin America and Caribbean region at the World Bank

In the short term, I’m worried about the Fed. In the next 12 to 18 months, that will be where much of the risks will come from for Latam. I am worried that we can have lower growth and higher inflation. In the medium term, I’m worried about whether the region is able to find a new growth story. We are headed to a world with a more challenging external scenario, China growing less, and overall less globalization. So what will drive growth in Latin America?

Ernesto Revilla
Chief economist for Latin America at Citigroup Inc.

To me, what remains one of the biggest economic risks ahead is the lack of consideration surrounding Black and Brown folks in economic policy decision-making. Failing to acknowledge how these vulnerable groups will grapple with the looming and already present economic realities (rising inflation and a pending recession) will ultimately be costly for everyone while further exacerbating existing inequalities that will further undermine any progress we make. We saw this back in 2009, when economic recovery efforts left out Black women, whose unemployment rate increased. It is my hope that we don’t make the same mistake again.

Anna Gifty Opoku-Agyeman
Co-founder of the Sadie Collective, a nonprofit organization addressing the underrepresentation of Black women in economics, finance, and policy

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Long term, there’s always horrible things like climate change and war and all that. But short term, I think the biggest risk is that the Fed will overdo it and it will slam on the brakes too hard.

Paul Krugman
Nobel laureate and professor of economics at the Graduate Center of the City University of New York

The main issue is the uncertainty and the geopolitical scenario. A much longer oil shock would make the economic recovery more difficult, moving into a situation where inflation would be controlled but at a bigger cost. On a medium term, the challenge is to start debating what would make the economies grow again. We are stuck in a situation where there was a lot of dependence on favorable financial conditions, including fiscal and monetary policies, which are good for as long as you can maintain them but they don’t promote sustained growth. We need to reinforce the debate of structural issues.

Agustín Carstens
General manager of the Bank for International Settlements

The biggest economic risk is inflation. First, for everyone, rising prices eat into our spending power. This hurts consumers and can impede growth as they are forced to cut back on consumption. The second risk is that the typical monetary response to inflation, increasing the fed funds rate/tighter monetary policy, can cut demand and also increase unemployment. The third risk is related to the first two—the economy is quite different than it was in the late 1970s, early 1980s. What we are a bit less sure of now is how tight monetary policy will work in this economy—will it bring demand down in a way that will stamp out inflation? I think the answer is yes, but the unknown is what that policy will look like in details. What will the fed funds rate have to be, given the rise of market concentration and the increasing evidence of monopsony in the labor market? That is a policy risk—that we may be too tame or too aggressive, and large errors in either direction have a big impact on the material well-being of working families.

Trevon Logan
Professor of economics at Ohio State University

Stagflation is the biggest economic risk. In the ’70s, I was a young economic researcher, and I remember that period of stagflation very well. Back then it lasted 10 years. The shock, I think, was slightly bigger then. From an oil price of $1 per barrel we jumped to $10 toward the end of 1972. From the point of view of economic, fiscal, and monetary theories, you can’t easily overcome a shock that triggers both inflation and recession. We’re all trying to find solutions. Raising interest rates fast to 16% to 20% is not one of them, but neither is dropping interest rates when inflation is rising, like some of our neighbors in the south are doing. Probably this calibration of a right fiscal policy with structural measures could lead us in a situation where the key rate and the inflation rate will converge. But avoiding a recession will be very hard to do at a global level.

Mugur Isarescu
Governor of the National Bank of Romania, and the longest-serving central bank chief in the world

The biggest downside risk is that slowing activity does not slow inflation. So long as weakening demand filters through to easing consumer prices and wage inflation, then central banks won’t have to slam so hard on the brakes and can try to engineer a soft landing. If inflation is sticky, however, the downturn will have to be more significant and sustained to drive inflation out of the system. The risk in this scenario is that this creates a conflict between governments and central banks. The biggest upside risk is the combination of tight labor markets and the energy challenge unleashes a massive increase in investment, which leads to a productivity revival.

Karen Ward
Chief market strategist for Europe, the Middle East, and Africa at JPMorgan Asset Management and a former economic adviser to the UK’s chancellor of the exchequer

The biggest economic risk ahead is the continuation of the war in Ukraine.

Ngozi Okonjo-Iweala
Director-general of the World Trade Organization

The greatest threat to the US economy is recession, induced by Fed tightening in reaction to elevated inflation. The Conference Board now anticipates a brief yet shallow recession in the US late this year. This would be anchored by periods of stagflation–low growth but high inflation. The outlook reflects a more hawkish Fed, including larger and accelerated interest-rate hikes into restrictive territory—i.e., above 3%—this year.

Dana Peterson
Chief economist at the Conference Board