Is the global economy on the brink? Four scenarios of potential collapse
Beneath the resilient surface of the global economy lie structural challenges that could threaten its stability. We examine what could unfold in the unlikely—but not impossible—event of a global economic collapse.
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The global economy may seem invincible, bouncing back after a pandemic, wars, and energy crises. But beneath the surface, deeper cracks are forming. Mounting debt and structural changes like ageing demographics threaten the very foundations of the current global order. What happens if these pressures trigger a collapse? We explore the wild card of global economic collapse through four future scenarios.
While they’re not an exhaustive list of all the possible future directions, the four scenarios below analyse pivotal trajectories that could trigger a global economic collapse, providing a strategic lens for organisations to explore the diverse ways the future might unfold.
In our scenario-building process, we focused on the following set of key driving forces that will influence the future of the global economy:
Rising Debt
Demographic drought
Increasing energy prices
Geopolitical tensions
Regulations
Central bank independence
Productivity growth
In each scenario, we examine the different ways these drivers may evolve in the years ahead, as well as the different ways they may interact and influence each other. All four scenario descriptions also include a development timeline section, which lists three to six steps that could plausibly happen to move us closer to the given scenario. The purpose of this section is to give readers a list of signs and indicators to look out for when monitoring future developments.
Learn more about our scenario-building method here.
Scenario 1: Hyperinflation leads to global famine
In a global climate marked by instability and deficient monetary policies, inflation spirals out of control. As superpower rivalry intensifies, a weakening dependency ratio and stagnant productivity growth increase debt levels. Prices for essential commodities and raw materials—such as fertilizers, grain, and oil—skyrocket. Despite the surging inflation, central banks find themselves unable to raise interest rates adequately due to political pressures and mounting debt.
In an effort to revive struggling economies, new monetary stimulus programs are introduced, but these measures backfire, triggering hyperinflation. The economic shock is severe and immediate. Global trade grinds to a near halt. Amidst the chaos, people hoard goods, and the barter system reemerges. Starvation becomes rampant, with some regions facing deadly famine.
Western currencies are forcibly tied to the dollar, which provides a temporary solution to the problem of high indebtedness. Yet, the broader economic landscape remains fraught with uncertainty and instability as nations navigate the aftermath of these turbulent changes.
Development path for scenario 1
2025: Economic growth remains sluggish, with governments still running large deficits post-pandemic. Intensifying economic competition between China and the US leads to increasing trade tariffs and further strains global markets.
2027: China forms alliances and trade agreements with raw material-rich countries. Emerging markets significantly increase their share of Chinese exports, driving up global demand and prices for commodities.
2029: A proxy war between the US and China erupts in the Pacific, causing severe supply chain disruptions. Economic prospects deteriorate sharply, with soaring inflation eroding wages and plunging many into poverty.
2030: Western central banks are reluctant to raise interest rates amid political and economic pressure. Instead, they implement monetary stimulus measures, causing inflation in Europe to spiral abruptly out of control.
2035: The culmination of all these factors leads to a global famine.
Scenario 2: Deregulation leads to an asset bubble, culminating in a global financial crisis
After a prolonged period of sluggish growth, governments opt to deregulate the financial sector to eliminate constraints. In the short term, this decision boosts productivity, economic growth, and employment rates. However, it also causes a sharp and unsustainable rise in the market values of assets and housing. The accumulation of high debt ultimately leads to a catastrophic bubble burst.
As the bubble bursts, capital flows into safe assets such as US bonds. Homeowners and households experience a dramatic collapse in their net wealth, leading to a wave of foreclosures. Though devastating, the financial collapse accelerates long-term productivity growth by eliminating unproductive firms from the market.
Development path for scenario 2
2026: A gradual ideological shift in politics sparks a demand for renewal of the Basel Accords.
2028: Looser financial regulations are implemented, boosting investments, income, and demand for housing and assets.
2030: Urbanisation adds pressure to housing prices. Private debt and asset prices reach record highs.
2032: The economy overheats, leading to a contraction in the housing market. A chain reaction of collapsing banks ensues, triggering a financial crisis.
Scenario 3: Demographic crisis leads to permanent economic stagnation
Global demographic changes severely impact economic growth, leading to a slow and painful stagnation. A shrinking labour force undermines fiscal stability and hampers economic expansion. Despite borrowing and investing, governments are largely powerless to cope with these structural shifts.
The labour shortage drives up labour costs, empowering workers to dictate terms in the job market. This dynamic increases unemployment and further exacerbates the dysfunction of the labour market. Consequently, the growth in real income and living standards in the Western world grinds to a permanent halt. Consequently, the megatrends of urbanisation and globalisation also begin to reverse as people move away from high-cost urban centres and countries turn inward to focus on domestic issues.
Development path for scenario 3
2025: Governments grapple with rising pension costs and a shrinking labour force. Low-skilled immigration fails to provide sufficient tax revenue.
2032: Birth rates plummet to unprecedented lows. While technological progress boosts individual labour output, automation solutions remain unfeasible.
2040: Despite growing R&D investments, returns diminish as labour continues to be a crucial component for increasing production.
2045: Low economic prospects drain investments and consumption, causing the global economy's growth trend to turn negative permanently.
Scenario 4: Global economic volatility leads to widespread stagflation
A weak and volatile global economy faces the dual challenges of high inflation and deep depression. Superpower competition and severe geopolitical tensions disrupt supply chains and increase production costs, driving high inflation. In response, central banks sharply raise interest rates, which deepens the economic downturn.
Unemployment and bankruptcies surge, leading to widespread austerity measures around the world, particularly in the unstable euro area. Shortages of imports and basic goods become common. Recovery is sluggish due to stringent fiscal and monetary policies that prolong economic stagnation.
Development path for scenario 4
2027: Global polarisation intensifies as some countries try to challenge the status quo of the US hegemony. Supply chain disruptions drive up commodity prices.
2029: Technological obstacles hinder the transition to green energy, leading to rising energy prices.
2030: Significant interest rate hikes occur worldwide. Consumer price inflation remains high, and the global economy falls into a depression. Consequently, the world economy enters a prolonged period of stagflation.
