World economy set to face more frequent shocks

In an updated and expanded version of the four horsemen of the apocalypse, the Organisation for Economic Co-operation and Development (OECD) has identified five "global shocks" that will destabilise the world economy with increasing frequency in coming years.

Rather than the traditional perils of conquest, war, famine and death, the OECD identifies viral pandemics, cyber attacks, financial crises, socio-economic unrest and geomagnetic storms as the five "global shocks" that will have to be endured.

The OECD, which comprises the world's advanced economies, said: "Disruptive shocks to the global economy are likely to become more frequent and cause greater economic and societal hardship." This, the organisation says, is because of the "increasing interconnectivity" of the world economy and the speed with which people, goods, services and data travel, so shocks are more rapidly transmitted throughout the world. The financial crisis of 2008 was the first such episode when, after Russia, China and India had rejoined a globalised world economy connected by the web, the failure of Lehmans triggered an instantaneous and simultaneous global collapse in confidence. At that point everything from Brazilian new car sales to Japanese share values "fell off a cliff".

The OECD highlights how a pandemic similar to the outbreak of Sars in 2002 could spread quickly and with devastating effect in Asia's "megacities" such as Dhaka, Manila and New Delhi. New antibiotics are "desperately needed to keep pace with the rising development of bacteria that are drug-resistant," the report adds.

No less frightening would be a large geomagnetic storm. Noting the increasing incidence of extreme natural disasters such as tsunamis, hurricanes, flooding, earthquakes and volcanic eruptions that have cost hundreds of thousands of lives and billions of dollars, the OECD puts the less familiar phenomenon of geomagnetic storms in a similar category.

The OECD explains that such "space weather" has "the potential to cause damage across the globe with a single event" via their impact on electric power transmission networks. "The simultaneous loss of these assets could cause a voltage collapse and lead to cascading power outages. As a natural event whose effects are exacerbated by economic and technological developments, geomagnetic storms pose a systemic risk that requires both domestic and international policy-driven actions."

Social unrest in Europe could also arise because of the effects of the sovereign debt crisis, especially in Greece. The new "700 euro generation", so-called because of the low salaries that they receive after university, are particularly prone.

As for cyber attacks, among which those on Sony and the IMF are two of the most notable recent examples, the OECD adds: "Catastrophic single cyber-related events could include successful attack on one of the underlying technical protocols upon which the internet depends."