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UNDP Report: Rising Insecurities

UNDP by Victoria Cole, July 27, 2015 Adjust font size:

1.1.3 Constraints from Geopolitical, Financial and Environmental Risks

The world has become more interconnected, expanding trade and capital flows and also creating increasing risks as a crisis originated in one country can move easily to the rest of the globe especially in the most fragile contexts.

For example, emerging and developing countries experienced severe capital outflows after the crisis when the U.S. Federal Reserve began its QE monetary policy. Risks in the financial sector are rising as MICs and LICs issue more sovereign debts denominated in US$ rather than their own domestic currencies, increasing their exposure to the international financial market risks.

Energy is of crucial importance to all countries. Global oil prices unexpectedly halved in September 2014 for several reasons, including the world's fundamental supply and demand structure, the amplification effect brought about by the connection between the oil and financial market, along with a number of other geo political factors. Most experts predict that low oil prices will continue into the long-term.

The fall of oil prices is seen by some as beneficial for the global economic recovery. Low oil prices could add 0.3-0.5% growth to the world's 2015 GDP but will not offset inadequate demand and investment and structural obstacles in labor and product markets.

If oil prices decline further, this will exacerbate negative fiscal situations and oil exporting economies' currencies to devalue. A stable oil market would be most advantageous to the world economy, so the IMF revised its predictions for world economic growth in 2015 and 2016 to 3.5% and 3.7% respectively.

These low energy prices offer few incentives for the world to address climate change. Yet, economists have stressed that energy and environmental issues are central to many of the strategic challenges facing the world today and they represent the most complex economic, political and diplomatic challenge of our time. The OECD reports that each year the world sees 3 million deaths as a result of air pollution.

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