Economics 04/02/2010: McKinsey gets banal with risk

Latest McKinsey Quarterly (here) contains an article on global risks. Sub-titled "Top risk forecasters highlight their picks for this year's economic and political hot spots", the article is short and... really, really, really banal.

Here it is in its full glory (emphasis is mine):

Where will the greatest risks — known and unknown — flare up on the global business landscape this year? In this roundup, three prominent forecasters scan the horizon. [Notice the use of the future tense, forward-looking language]

...Economist Intelligence Unit's latest global business risk assessment highlights ...growing political instability from rising global unemployment, macroeconomic risks as stimulus measures fade, and financial-system risk spreading to sovereign debt in Greece and other countries.

European fiscal divergence makes the list as well at the Eurasia Group, which also sees diminished appeal of economic partnership between China and the United States raising concern, while Iran faces growing pressure at home, regionally, and globally.

And the World Economic Forum's 2010 Global Risks report focused on, among other risks, the barriers to growth posed by structurally deficient or obsolete infrastructure, the spread of chronic disease, and illicit trade."

Let me re-list them:

• 'growing political instability from rising global unemployment' - hmmm, wasn't that already apparent in Greece back in December? or in Ireland during local and European elections? or in the US in the last Presidential elections? I can go on and on;
• 'macroeconomic risks as stimulus measures fade' - you don't need EIU's forecasting powers to spot that one - everyone trading in financial markets has been factoring it into valuation for months;
• 'financial-system risk spreading to sovereign debt in Greece and other countries' - now what's new here (given the last 15 months of erratic markets behavior and record bond issuance) is the 'financial-system risk spreading' bit. Which financial-system risk? It is a purely nonsensical statement, unless one means by it that the bond finance system itself is under threat (US Treasuries? German bunds?);
• The risk of 'European fiscal divergence' has been with us for some 5 years now and has been growing steadily;
• 'diminished appeal of economic partnership between China and the United States' - but, folks, 'economic partnership between the two is a traffic of investment from US into China in return of exports from China into the US. This 'partnership' was coming under pressure for decade now. It really started to unravel with undervaluation of yuan bearing on the dollar balance of trade in 2006-2007. Since then, the prospect of the 'diminished appeal' was pronounced in US politics, culminating in the last Presidential Campaign. President Obama has been promising a protectionist corporate tax system overhaul to 'diminish appeal' of investing in China for US MNCs since before his election. I wonder if this is really a risk for 2010;
• 'Iran faces growing pressure at home, regionally, and globally' - oh no, who could have guessed. Certainly 2009 elections - with violent clashes, murder of internal opposition leaders etc, all caught on TV news and broadcast around the world were not a sign of 'growing pressures at home'. And Russia moving alongside the US and Europe to attempt to curb Iranian nuclear ambitions (a process that started back in 2006) is also not a sign of 'growing pressures... regionally and globally'. In short - this 'prediction' is too - old news.

Only WEF actually returns some interesting (aka not-banal) risks - infrastructure constraint on growth is a good one (although there is an element of 'old news' here as well, as crumbling bridges in the US and collapsing new builds in Korea have been with us for almost 10 years now). WEF could have added to it the lack of Governments' capacity to find funding to repair this crumbling infrastructure as a new-ish constraint - post-crisis. They did not...

Illicit trade being on the rise? Predictable risk - in any recession, black markets grow.

But the pearl is the prediction of chronic diseases spreading in 2010. Of course 'chronic' refers to the rate of onset of disease and development being spread over longer time horizon (at least 3 months). So how would we know if chronic disease is spreading in the remaining 10 months of 2010? especially ones with gestation periods measured in years?

Precious stuff, really. Makes me want to create my own list of forward-looking risks for 2010 and beyond. It will start with something impactfull, like "Parts of the world will experience droughts while other parts will get flooded. Grey skies will cover Ireland on many occasions throughout 2010."

Any suggestions what else to include?