Preparing for the paradigm shift

Risk scenarios

Robert Powell

Director, Risk Briefing

Each month The Economist Intelligence Unit’s Global Outlook team seeks to
identify the top ten threats to global business operations—ranging across the
economic, political and security spheres. With a focus on the business operating
environment over the coming two years, each scenario provides the context and
potential timing of events, and concludes with a discussion of how each of these
occurrences would play out for the rest of the world.
Supplementing this analytical approach, we evaluate the scenarios according
to the probability of their occurrence and the potential impact on business
profitability—an approach that combines to give each scenario an “intensity”
score and, ultimately, their ranking.
For Asia, we have identified three risk scenarios especially relevant for the
region in 2017-18. Unsurprisingly, the new Trump administration in the US features,
but it is the sustainability of China’s economic performance that remains our top
concern.

RISK SCENARIOS (METHODOLOGY)

Very high risk = greater than 40% probability that the scenario will occur over the
next two years; high = 31-40%; moderate = 21-30%; low = 11-20%; very low = 0-10%.

Very high impact = change to global annual GDP compared with the
baseline forecast of 2% or more (increase in GDP for positive scenarios, decrease
for negative scenarios); high = 1-1.9%; moderate = 0.5-0.9%; low = 0.2-0.4%;
very low = 0-0.1%.

Risk intensity is a product of probability and impact, on a 25-point scale.