Eurasia Group | Eurasia Group Publishes ‘Top Risks’ Predictions for 2022

Eurasia Group Publishes ‘Top Risks’ Predictions for 2022

Eurasia Group
3 January 2022

#1 Risk for 2022: No Zero Covid: China's Zero-Covid Policy Will Fail
NEW YORK, 3 January— As 2022 begins, the world's attention is focused on two crises in desperate need of a coordinated response: the Covid-19 pandemic and climate change. But the United States and China, the world's two most powerful nations, have begun to focus increasingly on domestic issues, an inward turn that leaves each nation with less bandwidth for the kind of global leadership and coordination required to effectively respond to the world's gravest challenges.

While the US remains the most powerful country, it is also the most politically divided, dysfunctional and economically unequal among leading industrial democracies. America's political culture, in which domestic political rivals are increasingly viewed as enemies, has sapped its ability to address even basic problems. China, the second most powerful country, is also focusing more energy on domestic issues, as it seeks to jump-start its exhausted growth model, its overleveraged and unbalanced economy, and its fast-shrinking workforce. In doing so, China has become more authoritarian and state capitalist. And while focusing more on domestic issues reduces the odds of a global war, America's and China's lack of global leadership is a key component of our G-Zero world at this historic moment. 

These are conclusions that frame Eurasia Group's Top Risks for 2022, an annual prediction of the ten most potent threats to the trajectories of nations, politics, industries, health and the environment. Authored by Ian Bremmer, Eurasia Group's founder and president, as well as Cliff Kupchan, its chairman, this annual report, unveiled each January, helps investors, companies and the public anticipate risks to their investments, their businesses and their livelihoods.

The #1 risk for 2022 is 'No Zero Covid,' which describes how the virus is dividing nations by how rich/poor and vaccinated they are. “We're done with the pandemic, but it's not done with us, and the finish line depends on where you live,” write Bremmer and Kupchan. “For rich countries, the end of the pandemic will arrive soon as the virus collides with highly vaccinated populations and treatments that prevent death. But most countries, and particularly China, will have a harder time getting there. China's “Zero Covid” policy, which looked incredibly successful in 2020, is now fighting against a much more transmissible variant with vaccines that are only marginally effective. China's “Zero Covid” policy will fail to contain infections in 2022 and will lead to larger outbreaks and more severe lockdowns, and greater economic disruptions in a nation that has long been the world's primary engine for growth.”

Other risks in the report include (see below): #2. The Technopolar World, #3. US midterms, #4. China at home, #5. Russia, #6. Iran, #7. Two steps greener, one step back, #8. Empty lands, #9. Corporates losing the culture wars and #10. Turkey.

“The geopolitical recession is turning many corners of the world into no man's land,” Bremmer and Kupchan write. “Global neglect will allow looming crises in Iran and Ukraine to become more combustible, as well as a host of humanitarian tragedies from Myanmar and Afghanistan to Haiti, Venezuela, and Ethiopia.” 

Top Risks predictions have an impressive track record for being early and accurate: Just two days after releasing the 2021 Top Risks report, which named America's divided politics as its #1 risk, scores of Donald Trump's followers violently stormed the US Capitol in an attempt to overturn the election's outcome. America's divided politics remain a top risk, appearing as the #3 risk for 2022, as American voters head to midterm elections, President Biden's agenda is very much in doubt, and Donald Trump prepares to wield his command over the Republican Party.

For journalists, Bremmer and Kupchan will host an on the record press conference today, 3 January, at 11 am ET / 16:00 GMT to discuss these risks and take your questions. To participate, register here.
Below is an abbreviated summary of all ten Top Risks for 2022. Please click here for the full report.

Top Risks, 2022

#1 – No Zero Covid    
We're done with the pandemic, but it's not yet done with us, and the finish line depends on where you live. In the developed world, the end is near. The highly transmissible Omicron variant is colliding with highly vaccinated populations that are bolstered by highly effective m-RNA vaccines and covid treatments. That's why the pandemic will likely become endemic for advanced industrial economies in the first half of this year.  

But China, the primary engine for global growth, will face highly transmissible COVID variants without the most effective vaccines and with fewer people protected by previous infection. In general, developing countries will be hit hardest, and political incumbents will bear the brunt of public anger. Demand for booster shots in wealthier countries will prevent effective vaccines from becoming more widely available. New outbreaks will slow economic growth in emerging markets and leave poorer governments with more debt.  

In all these ways, Covid-19 will continue to drive political and economic instability.     

#2 - Technopolar world   
Today, the world's biggest tech firms decide much of what we see and hear. They determine our economic opportunities and shape our opinions on important subjects. EU, US, and Chinese policymakers will all tighten tech regulation this year, but they won't limit their ability to invest in the digital sphere where they, not governments, remain the primary architects, actors, and enforcers.    

Tech giants can't yet (and don't want to) effectively govern the digital space or the tools they're creating. Disinformation will further undermine public faith in democracy, particularly in the US. As tech firms and governments fail to agree on how to protect data privacy, cyber-security, and the safe and ethical use of artificial intelligence, US-China (and, to a lesser degree, US-Europe) tensions on these issues will grow.   

#3 - US midterms  
In November, Republicans will almost certainly win back majority control of the House of Representatives – and maybe the Senate. If so, Democrats will view GOP control as the illegitimate result of a voter-suppression campaign, and Republicans will see victory as further evidence of 2020 election fraud. Biden's impeachment will lead the GOP agenda and public trust in American political institutions will take an even larger hit.    

More important is what the midterms mean for the 2024 presidential election. Donald Trump is signaling he will run for president in 2024. If he is defeated by a Democrat, a Republican House could vote to overturn state-level election results, but a Democrat-controlled Senate would limit the fallout.   

But if Republicans win both the House and Senate this November, if Trump responds to possible defeat in 2024 by challenging the result, and if state-level officials submit alternative certifications that Republican congressional majorities accept, the 2024 US presidential election can be broken and a constitutional crisis will result.    

#4 - China at home  
An increasingly burdensome “zero-COVID policy” (see Risk #1) and President Xi Jinping's reform plans will unsettle markets and companies in 2022. Xi's vision of technological self-sufficiency, economic security, and social harmony – to “make China strong” – will collide with intensifying pushback from the West, an exhausted growth model, an overleveraged and unbalanced economy, and a rapidly aging population – and at a time when COVID variants continue to circulate. 

#5 - Russia  
A buildup of Russian troops near Ukraine has opened a broader confrontation over Europe's security architecture. President Putin could send in troops and annex the occupied Donbas, but his current demand is for major NATO security concessions and a promise of no further eastward expansion. But a grand bargain is unlikely, and close encounters between NATO and Russian ships and planes will become more frequent and more dangerous, increasing chances of an accident. Add ongoing concerns about Russian cyber-attacks and interference in US elections. Possible US sanctions that target the secondary market trading of Russian sovereign debt would end any hopes of more stable US-Russian relations.    

#6 - Iran  
Iran's nuclear program is advancing rapidly. With diplomacy stalled, the Biden administration has few options. Israel will increasingly take matters into its own hands—which once again raises the specter of Israeli strikes on Iranian nuclear facilities. These pressures will collide this year, leaving oil prices and regional states jittery, and increasing the risk of conflict.   

#7 - Two steps greener, one step back  
In 2022, continued upward pressure on energy costs will force governments to favor policies that lower energy costs but delay climate action. Rising energy prices will raise anxiety levels for both voters and elected officials –even as climate pressures on government increase.     

#8 - Empty lands  
With Washington and Beijing distracted by domestic priorities, and the EU, UK, and Japan unable to fill the resulting power vacuum, many countries and regions will be left with unmanaged crises. In Afghanistan, a disorganized and inexperienced Taliban will struggle to stop Islamic State from drawing foreign militants into ungoverned expanses of the country. The risk of terrorism also remains acute in the thinly governed Sahel. Civil wars will create new risks in Yemen, Myanmar and Ethiopia. Venezuela and Haiti risk growing refugee crises.     

#9 - Corporates losing the culture wars     
The world's biggest brands look forward to record profits but a more difficult year managing politics. Consumers and employees, empowered by “cancel culture” and enabled by social media, will make new demands on multinational corporations and the governments that regulate them. Multinationals will spend more time and money navigating environmental, cultural, social, and political minefields.    

#10 - Turkey   
President Erdogan will drag Turkey's economy and international standing to new lows in 2022 as he tries to reverse his plunging poll numbers ahead of elections in 2023. Unemployment and inflation are high, and the lira is weaker and more volatile, but Erdogan has rejected orthodox economic management. His foreign policy will grow more combative this year to distract voters from the economic crisis. In the unlikely event of early elections in 2022, all these risks will be exacerbated.    

Red herrings  
The US and China are each too busy with challenges at home to wage Cold War 2.0, and risks of a confrontation over Taiwan are exaggerated. The presidential faceoff between Jair Bolsonaro and Luiz Inacio Lula de Silva will test but not undermine Brazil's democratic institutions. More Middle East migrants will reach EU territory, but there will be no repeat of the 2015-16 crisis this year.  
About Eurasia Group:
Eurasia Group is the world's leading global political risk research and consulting firm. By providing information and insight on how political developments move markets, we help clients anticipate and respond to instability and opportunities everywhere they invest or do business. Our expertise includes developed and developing countries in every region of the world, specific economic sectors, and the business and investment playing fields of the future. With our best-in-class advisory and consulting offerings and GZERO Media, the Eurasia Group umbrella provides the marketplace with a complete political risk solution. Headquartered in New York, we have offices in Washington, London, San Francisco, Brasilia, Sao Paulo, Singapore, and Tokyo, as well as on-the-ground experts and resources in more than a hundred countries. "Politics first” grounds our work: Politics is the lens through which we view the world, and we are committed to analysis that is free of political bias and the influence of private interests.
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