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The world faces more serious geopolitical risks in 2024 than at any time since the Cold War, possibly since 1945. The consequences will be felt across the global economy and at the ballot box. With the post-war system of international institutions frayed, the risk of misjudgements tipping rival powers into confrontation, even war, is real.
Financial markets face enormous challenges as countries accounting for two fifths of global GDP go to the polls, while rising international tensions risk spiralling into regional and possibly even global conflicts. Political and market volatility will feed each other. Supply chain fragmentation and sanctions will make it harder for central banks to reduce inflation. That in turn will have electoral consequences.
If forecasts are to be believed, many countries will endure another year of inflation and sluggish growth. Economists fear the Japanification of Europe, whereby institutional investors fly to safety in bond markets as interest rates remain high, eschewing investment opportunities that could support governments’ strategies to grow their economies through better investment allocation.
The Dollar’s position as the world’s global reserve currency is unlikely to be dislodged, especially at a time of geopolitical uncertainty. But an increasingly multipolar world will see the Dollar’s position come under threat over the longer term.
Relationships between the United States and both China and Russia are characterised by tension and mistrust. Autocrats in Moscow, Beijing, and Tehran, facing domestic discontent, may be tempted to rely even further on playing the nationalist card and risking foreign adventures.
The US presidential election in November is likely, on current polls, to be very close. If President Trump wins, it might be expected that he would take office surrounded not by experienced people from business and the military such as Rex Tillerson and General McMaster, as was the case in his first administration, but by true ‘Make America Great Again‘ believers.
He might be expected, if elected, to pursue trade and investment policies even more protectionist than President Biden’s, as well as trying to strong-arm US allies into aligning with a strategy designed to isolate China commercially. Trump’s commitment to NATO and the defence of Europe cannot be taken for granted. He has said that he would end the Ukraine war within 24 hours of coming to office. What might hold Trump back is either a Democratic-controlled Senate, or the argument that a Russian win in Ukraine would embolden China’s aggression towards Taiwan. China’s leader, Xi Jinping, who is already beset by economic problems, is expected to double down on efforts to make China less dependent on the West and may even resort to brinkmanship on Taiwan, such as a blockade, to rally nationalist support within China.
The European Parliament elections in June and the choice of a new Commission (requiring agreement by the EP and member-states) over the summer and autumn mean that Brussels will look inwards during 2024. This is also likely to be the case in the UK with its own looming election. Any attempt to reset UK/EU relations will therefore wait until 2025. The success of the populist right in the Dutch elections will stoke fears of a nationalist surge in the EP elections. European governments will seek to reduce immigration.
Weaker German leadership in Europe, due to tensions between Germany’s coalition parties and the constitutional court’s decision to strike down Berlin’s extra-budgetary spending programmes will make it harder still in 2024 for the EU to agree on member-state deficits, migration, or programmes to finance net zero. Nor will the EU agree a credible action plan to match its renewed commitment to enlargement.
European leaders fret that a new US administration might severely dilute or even abandon its 80-year old commitment to European security but cannot summon up the political will to reduce their dependence on American taxpayers for their defence.
Barring a new Russian revolution, Putin will be re-elected President in March – having decided in advance how big his majority should be.
In the Middle East there is no easy end to the war in Gaza and the risks of further turmoil in the region are increasing. Moderate Arab countries are acutely worried about their streets’ response to Israeli action. If the surge of violence in the West Bank worsens, it will put huge pressure on the Hashemite regime in Jordan, where about 70% of the population is Palestinian.
So far the US has deterred Iran from getting involved. But with both Iran and Israel led by hard-line nationalists under massive domestic political pressure, the risk is real of a miscalculation or misjudgement leading to a wider war that would engulf Lebanon in the conflict and put Gulf oil and gas supplies at risk. Just fears of such a conflict could cause energy prices to surge.
For business, geopolitical risks (including to energy and critical raw materials) include interruption of supplies and volatile prices. Political uncertainty will make it harder for companies to make confident decisions about future investment. A turnover in governments could also lead to an overhaul of economic policy – in both directions. New Argentine President Javier Milei is determined to radically change course – abolishing the central bank and dollarizing the economy. The response in the bond markets will be a test case for how populist politicians could disrupt the global economy. Increasing divisions between the West and large emerging powers such as China, but also India, could disrupt markets and put a premium on borrowing costs. We face a turbulent and unpredictable year.
