What TV doesn't, print can't; we deliver.
What TV doesn't, print can't; we deliver.
Global trends and challenges anticipated for 2024 include the deepening of the global system’s bifurcation, weakening inflation with upside risk from exogenous shocks, and growing pressure on the US-led global security architecture.
As the world enters 2024, several themes from 2023 will continue while new ones will emerge. The bifurcation of the global system is set to deepen, compounding inefficiencies in trade. While inflation has declined in recent months, exogenous shocks have the potential to reaccelerate price rises. The US-led global security architecture is under pressure against the backdrop of great power competition. Meanwhile, sixty countries are set to go to the polls, the most the world would see in any one year until 2048. Political, social, and economic churn since the Covid pandemic are expected to come to a head. Alongside this, the interplay between technology and social control has advanced significantly since the last election cycle and can potentially impact democratic outcomes.
Inflation may remain modest, but upside risks persist. The U.S. and some emerging markets are stepping out of a near-round trip on inflation over the last two years. The inflation story is not over, but it may appear price rises have levelled off in large part due to weakening demand in China and Europe. Deglobalization and bifurcation in commodities trade are raising geographically localized inefficiencies. These inefficiencies create pockets of inflation. Geopolitical uncertainties are growing and could trigger commodity supply disruptions, as seen with the Red Sea incidents. Inflation coming from this could adversely impact small nations that cannot negotiate stable long-term supply agreements. Members of the global south are particularly exposed to this risk, in what is a continuation of this theme that has played out since the Ukraine war.
Until now, major contributors to inflation included: post-Covid demand recovery, buildup of money during the period of low-interest rates, Covid/post-Covid supply chain disruptions, fallout of US-China competition, Russian-Europe gas supply constraints, and the war in Ukraine which led to sanctions and in turn, a bifurcated and inefficient energy market. Out of these, two major stories persist. One is supply chain derisking from China and the other is the persistence of the real estate asset bubble created by the preceding decade of low rates. The former increases inflation and the latter exacerbates inequality. Meanwhile, labor arbitrage with China is eroding for the first time in forty years. The consequence of this will be baseline inflation above the pre-Covid level and as a result, limit room to cut interest rates in developed economies. Meanwhile, commodities trade has realigned around sanctions regimes. Some countries receive natural resources at discounts while others do not, leading to divergent economic outcomes amongst importing nations.
A widening gap in marginal cost of production across geographies will accelerate deindustrialization in some regions, like Europe, and industrialization in others, like India. Since the cost of capital is structurally higher, the deployment of capital will become disciplined. This means international money flows will seek destinations that offer growth undergirded by strong and sustainable fundamentals. Given major economies are witnessing diverging economic performances, investors will aggressively seek out relative outperformers. In some ways, the outperformance of the Indian stock market versus many others in 2023 reflected this. Going forward, the value of uncorrelated returns will take centre stage. The geopolitical impact of this story is significant. Countries that offer such investment opportunities would gain multi-domain asymmetric leverage over major powers. The divergence in economic performance will lend to tailwinds to multipolarity. The primary driver will be India. Through bilateral and multilateral relationships, Saudi Arabia, Russia, and the UAE are standout second-order beneficiaries. A natural consequence is a clash between corporate and political interests in the major sources of international capital, primarily the US.
China’s economic weakness can persist due to its debt-laden real estate sector and inability to grow consumption. Deleveraging is a painful process. Housing bubbles typically take 2-3 years to deflate, which means China is probably just halfway through the process. From 10% in 2000, real estate now forms 25-30% of China’s GDP. China’s median age has risen to 39 from 29 in the same period. Consumption is not picking up even as the central bank cut rates on savings deposits in 2023. A now older demographic is inclined to save more than spend, especially when property values decline. The government may attempt to stimulate the economy with further rate cuts. The ramifications of continued economic weakness in the geopolitical arena are important to keep an eye on. As seen last year, spending on BRI projects declined. 2024 would likely see a continuation of that trend. As the country faces economic headwinds, it is only natural for the state to deploy deeper and more sophisticated surveillance methods on its population.
Countries will look to diversify their foreign reserves. In 2023, the US relied significantly on the dollar’s reserve status to bolster its economy when interest rates rose rapidly. No currency comes close to replacing the dollar as the world’s reserve currency. That said, the US’ decision to seize $300 billion in Russian foreign reserves has permanently dented international confidence in Washington’s dollar guarantees. Countries on the fringes of the US sphere of influence are incentivized to diversify their holdings. Whether or not some embrace El Salvador’s model of partly adopting bitcoin is anyone’s guess, but the idea has surely passed through the minds of leaders. Rising US debt and volatility in US treasuries are a growing concern for sovereign investors. Traditional diversification assets like gold can benefit. Stockpiling natural resources and owning agricultural and energy-producing real estate overseas might be seen as a viable strategy. There are hard limits to this for small countries, but for large states like China, Russia, Saudi Arabia, and the UAE, there is greater appetite and scope to take this route.
The US’ K-shaped post-Covid economic recovery creates social and political churn. Lacking most social security guardrails that exist in large parts of the world, the economic pie for the bottom 50% as well as the middle class is shrinking. On some parameters, it is the fastest rate in four decades. Inequality is feeding social tensions. Those left behind are becoming jaded with the prospect that the American Dream is out of their reach. Additionally, illegal immigration is now rampant, and typically, migrants threaten to undercut blue-collar citizens in semiskilled jobs. Further downstream – or upstream – however one may look at it, politics and democracy have been impacted. Disaffection with the federal government is growing and a two-party system is proving inadequate in meaningfully giving a voice to the public. Creeping authoritarianism and a perceived lack of leadership and accountability at the highest levels pose significant challenges to both the US’ national and international narratives. Adversaries are capitalizing on both fronts. Penetration by Chinese technology firms like TikTok is now entrenched and has local political patronage. Certain Middle Eastern countries would have learned that years of investment in US academia and media have paid dividends by shaping public sentiment during the Israel-Gaza conflict. The establishment, which is in charge of curtailing foreign influence, has elements beholden to foreign interests.
The resilience, funding, and global reach of the US and its alliance network will be probed. After the Ukraine and the Gaza conflict came increased tensions in the Red Sea. US adversaries would test the US’ will to respond to provocations as it would bipartisan consensus formation in Washington. The Houthis steadily raised the impact of their actions to test the US’ limits. The same can be expected in other geographies, be it against US/US interests in Central Asia, Afghanistan, Africa, Iraq/Syria, Latin America, and the South China Sea (SCS). While any action in SCS would receive significant media coverage, bushfires in other regions may remain out of the news cycles. However, igniting conflicts in those regions may be the natural next step for America’s adversaries. An election year, in particular, is fraught with such risks.
Rising debt levels, divergence in economic performances across geographies and structural shifts in the world order pose material risks to global stability. The marked rise in technology-enabled authoritarianism in Western democracies converges with their desire to control outcomes in an era of great power competition. Overall, fragmentation is set to benefit some countries while negatively impacting others. The need for nimble-footed foreign policy to rise to the occasion has never been as important.
