IMD World Competitiveness Booklet 2023

Navigating the polycrisis: Addressing interconnected challenges The interplay of inflation, geopolit ical risks, and a fragmented world is currently shaping decision-making and will continue to do so in the near future. These challenges are not isolated; instead, they are deeply interconnected, with each one magnifying the others. For example, geographical fragmentation can disrupt supply chains, leading to inflationary pres sures. High inflation rates may prompt economies to adopt tighter monetary poli cies, impacting their output performance and potentially leading to a recession, as seen in the global financial crisis of 2008. others. For instance, consider the impact of inflation on energy prices: countries that are energy producers benefit from price increases while energy-consuming economies struggle with higher prices. 2. Embrace agile and innovative solutions:

Navigating the polycrisis requires agility and adaptability. Research, such as the rankings produced by the World Compet itiveness Center (WCC), shows that coun tries excelling in flexibility and adaptability tend to perform strongly. This includes the government’s ability to adapt policies based on economic conditions and the perception of the economy’s resilience by market executives. Both the broader economy and individual enterprises benefit from agility, as it enables them to explore unconventional solutions and modify plans in response to evolving circumstances. Flexibility is essential when faced with unexpected challenges arising from the interplay of inflation, geopolitical risks, and a fragmented world. Embracing an agile approach allows organizations to respond promptly and effectively to the changing landscape. While the path ahead may present difficul ties, organizations that proactively address the polycrisis will be better equipped to seize opportunities and drive sustainable growth in an increasingly fragmented world.

The concept of a “polycrisis,” as described by Adam Tooze, aptly captures the inter connected nature of these crises. To effectively address this polycrisis, both governments and businesses must under take challenging yet necessary steps. While the specific strategies will differ based on each economy and businesses’ sources and competencies, there are two fundamental pillars of designing solutions: 1. Enhance awareness of interconnected challenges Businesses must recognize and under stand individual challenges while culti vating an elevated awareness of the complex interdependencies between inflation, geopolitical risks, and a frag mented world. Similarly, economies as a whole must acknowledge the strength of each challenge and its influence on

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