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Income disparity poses biggest threat to global economy

A woman sits as she ask for alms in the Andalusian capital of Seville, Spain, on Jan. 4, 2013.

Marcelo del Pozo/REUTERS

A major systemic financial failure. Extreme weather patterns. A water supply crisis, weapons of mass destruction, religious fanaticism, stark income disparity, cyber attacks – and those are just a few of the major risks to the global economy this year.

In a report that promises to snap even the most relaxed reader out of their warm, post-holiday glow, the World Economic Forum has released its eighth annual analysis of the greatest economic threats on the planet.

The single most likely risk in the next decade is severe income disparity, according to the study, based on a survey of more than 1,000 experts in industry, government, academics and civil society who were asked to assess 50 global risks. Chronic fiscal imbalances are the second-most likely threat, followed by rising greenhouse gas emissions, water supply crises and mismanagement of an aging population. This is the second year in a row respondents identified widening gaps between the richest and poorest citizens as the most likely global risk.

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This year's research focused on the interconnectedness of risk – how easily a breakdown in one system can affect another as the world becomes ever more interdependent.

The key example is in economic and environmental systems. "Like a super storm, two major systems are on a collision course," the report said. The interplay "between the stresses on the economic and environmental systems will present unprecedented challenges to global and national resilience."

Recent weather events highlight the economic toll of natural disasters that are likely to become more frequent as the climate changes. Hurricane Sandy, for example, cost more than $70-billion (U.S.) for New York and New Jersey last year, while droughts in the Horn of Africa in 2011 hurt the livelihoods of 9.5 million people.

Digital "wildfires" in a hyper-connected world is another area that could wreak havoc. The chance of a rapid viral spread of information that is misleading or provocative is "exponentially greater today" than in decades past – with risks ranging from massive fraud to cyber attacks and terrorism.

Health is another area of concern. Antibiotic-resistant bacteria is a key source of worry, and that's linked to concern over the world's vulnerability to pandemics and unforeseen consequences of new life science technologies. Losses to GDP stemming from antibiotic-resistant infections have already been pegged at 0.4 per cent to 1.6 per cent, and in the next decade "it is far from unrealistic to project a significant spread of antibiotic-resistant bacteria with high mortality rates," it said.

The Geneva-based World Economic Forum released the study in collaboration with Marsh & McLennan Companies, National University of Singapore, the University of Oxford, the Wharton Centre for Risk Management, Swiss Reinsurance Co. and Zurich Insurance Group.

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About the Author

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More

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