© Funtap P | Dreamstim
Economic Downturn is Top Risk For Companies

Economic Downturn is Top Risk For Companies

July 21, 2022
Other risks include energy price inflation and key material shortages.

In a new Gartner report, Emerging Risks,  concern about a macroeconomic downturn has rapidly ascended into the top emerging risk facing organizations. The survey, with 306 senior executives and risk management professionals, was conducted in the second quarter of 2022.

The top five risks are:

  • Macroeconomic downturn
  • Escalation of conflict in Europe
  • State-sponsored cyber attacks
  • Energy price inflation
  • Key material shortages

“The top five risks reported by respondents were notable both for their interconnectedness and origination outside of the organization,” said Chris Matlock, vice president, Gartner Legal, Risk & Compliance practice, in a statement. “While interconnected, many of the top risks send conflicting signals on the state of the economy, which makes the role of emerging risk management (ERM) leaders especially crucial in filtering the most relevant, organization-specific information up to the C-Suite and board.”

Gartner identified an economic downturn as one of the top five emerging risks in the first quarter and concern about this risk has accelerated since then. Notably, all five top emerging risks in the second quarter are external to the organization and can have significantly different impacts based on geography and industry.

ERM leaders should continually reassess assumptions about their macroeconomic outlook and ensure that “top-down” risk assessments originating from senior executives are balanced by “bottom-up” risk evaluations that rely more on the experiences of business unit leaders from across the organization.

Senior executives should be concerned about signal loss or the inability to get critical, on-the-ground intelligence in a timely fashion to respond to these fast-moving risks. According to Matlock, leading organizations do not just avoid risk, but seek to embrace it as an opportunity to expand market share and move past competitors.    

Balancing Near-Term and Longer-Term Risks

Energy price inflation ranked as a top five emerging risk concerning respondents, yet levels of executive attention may still not be adequate to effectively mitigate the risk.

An escalation in impacts from Russia’s invasion of Ukraine could drive energy prices higher, as well as ongoing vulnerabilities from extreme weather events, including the upcoming North American hurricane season. As a result, multinational organizations could see disparate geographical impacts in energy price rises, especially in Europe, which is more vulnerable to supply shocks.

Matlock said executives should be prepared for continued issues because of ongoing sanctions on Russia and because of an imbalance in specific product availability at refineries around the world. This is leading to higher prices throughout the energy supply chain, adding to the existing inflationary pressures.

“Uncertain environments require executive teams and their ERM partners to ensure they have processes in place to zero in on the most pressing risks for their organizations and ensure mitigation plans are in place for worst-case outcomes,” said Matlock. “ERM leaders can help bring clarity to executive decision making through qualitative assessments that are tailored to the organization’s risk appetite, which is especially useful at a time when quantitative measures of risk are elevated across the board.”

Latest from Global Supply Chain

25560070 © Yuliia Brykova | Dreamstime.com
Supply Chain Stability Improving
#64128824@Igor Groshev|Dreamstime
Preparing for Longer Conflict in the Red Sea: