The global economy has already reached a level of dynamism that the International Monetary Fund (IMF) defines as “vulnerable to shocks”. The world began the decade with a pandemic that brought activity to an almost complete halt, followed by a major distribution gridlock that lit the spark of inflation, and later the war in Ukraine ultimately led to the flames spreading. Economic growth is expected this year, but there will be weakness in regions such as the Eurozone. The risk map is growing. Geopolitical tensions are no longer just coming from Moscow and Beijing, but also from Israel and the Red Sea, especially since the US and the UK have launched airstrikes against several cities in Yemen controlled by the Houthi rebels in the last few hours. In addition, interest rate hikes may affect the economy more than necessary, and China's real estate market continues to pose a threat to economic stability. This is the map of the main risks of 2024.
Geopolitical tensions. International institutions view the risks of political crises almost as a kind of “new normal”. In 2022, the Ukraine war hit commodity and energy markets, causing prices to skyrocket. The war in Gaza represents a new challenge. The greatest fear was a further increase in the price of oil. According to the IMF, a 10% increase in crude oil prices reduces global gross domestic product by about 0.2% and increases inflation by two to four tenths. That hasn't happened for now. The other fear is the spread of new disruptions in trade, which has been virtually stagnant over the past year.
The focus is now on instability in the Red Sea, through which 12% of world trade passes. After the attacks by the Houthi militias from Yemen, most shipping companies had decided to change routes and redirect their merchant ships towards the Cape of Good Hope in southern Africa to avoid kidnappings and drone attacks by the Houthi rebels. The measure means between 10 and 14 additional travel days and therefore means delays and increases in the delivery of goods and raw materials such as gas or oil that in the past crossed the Red Sea and entered the Mediterranean via the Suez Canal.
In addition, 2024 will be a year of intense electoral activity. There is a possibility that Donald Trump returns to the White House, which could change the course of the economy. There are also upcoming elections in the UK, India and the European Parliament, which will once again test the strength of right-wing populist parties. “Geopolitical conflicts are increasing, industrial, cultural and political productivity has all but disappeared, and we are drowning in meaningless nonsense in a world that urgently needs solutions to clean water, flood protection, climate change, inequality, defense, cybersecurity, education and infrastructure .” “says Steen Jakobsen, Chief Investment Officer of Saxo Bank.
Interest charges. Central banks around the world had to raise interest rates abruptly and practically from zero. Monetary authorities have since exercised extreme caution, including in so-called shadow banking (non-bank lenders such as pension funds, insurance companies and even hedge funds). Still, they have not been able to avoid episodes of instability, such as the one that unnerved U.S. authorities in the United States last spring, when regional banks led by Silicon Valley Bank rocked the global financial table. “What we saw were the first signs of weakness. And I think they should be taken more seriously, more than what was done,” said former Bundesbank President Axel Weber recently in Madrid.
Not only that, analysts believe that central banks could derail the so-called soft landing, especially in Europe, if the process of falling inflation is not accompanied by a coherent monetary policy. Or what is the same if tariffs are not reduced to adapt to the new reality? For now, the ECB has only signaled that it will not increase the price of money any further, but it does not want to talk about declines.
Inflation. Experts assume that inflation will continue to ease. Energy prices continue to fall while food prices weaken. However, the fight against rising prices cannot be over. Climate change has led to extreme events such as droughts becoming more frequent. And this risks such an increase in food prices becoming structural, as is the case with olive oil, which has not yet reached its ceiling due to poor harvests. At the same time, geopolitical tensions may further exacerbate energy problems, although this aspect, namely the normalization of oil and electricity prices, was one of the positive aspects of 2023.
In Europe, the ECB continues to monitor domestic inflation variables. In her last appearance, Eurobank boss Christine Lagarde pointed to salary increases and business margins, but exercised Frankfurt's usual caution. “We need more data to better understand what is happening,” he said.
China. The Asian giant is no longer the world's most populous country – India surpassed it in April – but remains the engine of global growth, albeit with increasing difficulties. Analysts are particularly concerned about the real estate sector, whose valuations could remain stretched. Hence the problems of some of its real estate agencies such as Evergrande or Country Garden. Recently, the shadow bank Zhongzhi declared itself insolvent with a hole of 33 billion euros, which set alarm bells ringing again.
Beijing's intervention to avoid a crisis is enough for now. The growth rate for 2023 will be around the proposed 5%, but China and the end of its economic miracle have become a fixture on the list of possible black swans that can change the pace of the planet. Nobody can say exactly when it will happen or how strong its impact will be, and perhaps this is one of the arguments that can most reassure the Chinese authorities: the entry into a period of turbulence has been announced for years, but this decline is Hell doesn't just happen.
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