SUPL - A Disjointed World: Themes For 2024
2023-12-06 08:45:00 ET
Summary
- Geopolitical reordering: National interests will impact global relationships, trade, and investment, with the outcome of scheduled elections having major implications.
- Economic fault lines: Regional divergence in inflation rates and monetary policy may lead to recession in some economies, while others cut policy rates.
- Resource security: Governments will focus on self-sufficiency and securing critical inputs, creating risks and opportunities for companies in resource-rich countries.
The global environment has still not settled onto a clear pathway toward a new stability as we enter 2024. In this disjointed world, we confront risks posed by potential volatility across the economic and political spheres. We also see potential opportunities arising from the new reality of greatly segmented global relationships.
We have identified five overlapping themes that will drive global political and economic relationships in 2024: geopolitical reordering, economic fault lines, resource security, supply chain resilience and logistics rewired.
Geopolitical reordering
National interest objectives will influence reordering of relationships between countries and in multilateral forums, impacting global challenges, flows of trade and investment. An important indicator underlying the direction of these risks in 2024 will be the outcome of more than 75 scheduled elections including India, Indonesia, Mexico, the US and to the European Parliament. About half of these polls will be presidential elections. The outcomes will have major implications for policy direction and priorities.
Economic fault lines
Regional divergence in inflation rates and monetary policy is exposing economic fault lines. The ongoing stress caused by tighter financial conditions and growing geopolitical tensions appears likely to tip some economies into recession. Central banks in some emerging economies are already cutting their policy rates as we enter 2024. We expect these to become more widespread in the early part of the year. In contrast, easing cycles in the US and other advanced economies will probably only begin from the middle of 2024 onwards, given lingering inflation concerns.
Resource security
Prompted by extreme weather events, social and geopolitical challenges, and delayed energy transition targets, governments will focus on promoting strong industrial and sourcing policies that encourage and reward self-sufficiency to secure essential critical inputs and key minerals for 2024 and beyond. Many governments in resource-rich producer countries, notably in Latin America and sub-Saharan Africa, will seek to leverage the global competition for natural resources to boost domestic industry. That could create risks and opportunities for companies operating in these countries.
Supply chain resilience
Supply chain resilience is vital amid significant uncertainties related to labor and policy implementation. Labor costs will remain high, and strikes will continue to be a risk in 2024. Companies in 2024 will need to find a balance between the more conservative, "just in case" approach to inventory management and the leaner "just in time" approach. Preparing for potential shocks will come at a cost, and the current economic environment could make investing in resilience strategies challenging.
Logistics rewired
Geopolitical tensions, coupled with intentions to diversify sourcing, are likely to increase risk for global supply chains in 2024. As supply chains are retooled, and in many cases broadened, they will rely on cargo transportation outside of established shipping hubs — generally within the APAC and Middle East regions. Companies that add more diversity in sourcing locations or supplier networks will have greater complexity to manage going into 2024, along with existing and potential sanctions and carbon-reduction initiatives.
All five themes influence one another, and none will develop in isolation. Whether in green transitions, shifting supply chains, or other important areas, all will be measured against the capacity for a more fluid, flexible approach by policymakers, companies, and other stakeholders to navigate this disjointed world.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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A Disjointed World: Themes For 2024