A macroeconomic downturn has moved into the top five risks among senior executives, said Gartner recently when releasing the Emerging Risk Report based on results of a survey of 330 senior executives in Q1 of 2022.
The macroeconomic environment was already challenging before Russia’s invasion of Ukraine, marked by persistent inflation and supply chain bottlenecks, which remain largely unresolved, said Matt Shinkman, vice president with the Gartner Legal, Risk & Compliance practice.
“Executives now face a spread of risks that are difficult to plan against, including contagion effects from war in Europe, aggressive central bank tightening, and continued COVID-19 pressure on growth in major global markets,” he noted.
Until this quarter, an economic downturn had not surfaced as a top five emerging risk, Gartner said.
New ransomware models, given increased urgency due to Russia’s invasion of Ukraine and postpandemic talent remained as the top overall emerging risks, in line from findings with the previous two quarters.
The risk of a macroeconomic downturn has three key root causes that have driven it towards the forefront of executives’ minds at the start of 2022, according to Gartner.
Central bank rate hikes. The Federal Reserve and other major central banks have taken a hawkish stance that has driven concerns about a market correction and lower overall liquidity in global markets.
Russia’s invasion of Ukraine. Fears of contagion effects have grown as the war continues and has driven higher-level concerns about a global economic reset and the unpredictable effects of deglobalisation.
COVID-19 variants. The persistent presence of COVID-19 and potential for new variants continues to limit global market access and restrict economic growth.
Concerns about an economic downturn were felt most acutely in some of the most economically sensitive sectors, including consumer discretionary, basic materials and financial services, where 75% or more of industry respondents indicated it as a top risk.
The economic downturn risk was ranked highest regionally in the Asia Pacific region.
The potential for an economic downturn has significant implications for enterprise risk management (ERM) teams who may have initially planned for a more aggressive organizational risk posture this year in anticipation of an economic rebound and diminished impacts from COVID-19, Shinkman pointed out.
“ERM leaders must work with their business partners to reset many assumptions that occurred before the outbreak of war and confirmation of aggressive quantitative tightening,” he advised.
Without adjusting plans for these new realities, organisations face an appetite risk balance that could see them taking either too much risk, or otherwise being unprepared for opportunities presented by a downturn, he added.