The geopolitical risks to the world and U.S. economies in 2024 are numerous and varied, encompassing rising geopolitical tensions, economic slowdowns, especially in China, evolving geopolitical competitions, and energy security concerns, among others. Here is a list of concerns to monitor. None pose an imminent threat to economic growth now, but each has potential to cause economic harm.
War: Conflicts in Eastern Europe and the Middle East pose significant risks, especially given these regions’ critical roles in the global food and energy supply. An escalation in these conflicts could disrupt global oil production and shipping through key routes like the Suez Canal, potentially leading to higher global oil prices and stoking global inflation.
China’s Economic Slowdown: China’s expected slower growth rate could have widespread implications due to its significant role in global trade and as a major consumer of commodities. A more pronounced slowdown would adversely affect global growth and hit commodity-exporting developing economies hard.
Fracturing Global Economy and Inflation: The global economy is becoming increasingly fragmented into rival blocs, impacting supply chains and trade relationships. Inflation remains a significant challenge, with varying rates across different countries and implications for global economic stability.
US-China Relations: The détente between the United States and China in 2023 may not hold in 2024. Recent Taiwanese presidential elections yielded a regime in favor of independence, a stark contrast to Beijing's stated policy of reunification. The United States government supports Taiwanese independence largely in part because of the island's critical role in electronics manufacturing, specifically the production of critical microprocessors. A military hardware buildout on both sides continues. Not only does the prospect of a military miscalculation loom, but presidential election year politics are in full swing in the United States. The current democratic administration as well as the main Republican challenger, Donald Trump, maintain hawkish policies toward China, which could further inflame tension.
Energy Security: Cybersecurity threats and the fallout from the war in Ukraine are the risks here.
FBI Director Christopher Wray has expressed serious concerns about cybersecurity threats to the U.S. energy infrastructure, highlighting the significant risks posed by state-sponsored hacking operations. According to Wray, Chinese hackers are particularly focused on critical infrastructure sectors such as water treatment plants, the electric grid, and transportation hubs. Their intent is to “wreak havoc and cause real-world harm to American citizens and communities” by exploiting vulnerabilities in these systems. This strategy includes developing and distributing malware that enables them to conduct pre-operational reconnaissance and network exploitation against critical infrastructure, as part of Beijing’s broader campaign against the U.S. The FBI and the Cybersecurity and Infrastructure Security Agency (CISA) have identified and countered such threats by disabling hacked routers and taking steps to sever connections to malicious networks.
The invasion of Ukraine led to a massive shock in global energy markets, notably reducing Russia’s gas supplies to the European Union (EU) and altering global oil trade patterns. Russia, previously supplying a large portion of the EU’s gas, more than halved its pipeline gas supplies over the past year. This forced Europe to seek alternative sources and reduce consumption, significantly impacting global energy supply dynamics and contributing to price volatility.
Despite sanctions, Russia’s oil exports have been rerouted successfully to Asia, though the country has faced challenges in finding buyers for its oil under G7 price caps. This redirection signifies a substantial shift in global energy trade routes. The European Union (EU) is now forced to rapidly rethink how the continent will maintain energy security now that hydrocarbon exports from Russia have found alternative markets.
In response, the EU has embarked on the REPowerEU plan, aiming to end reliance on Russian fossil fuels by 2027 and increase renewables in energy consumption to 45% by 2030. This includes significant investments in renewable energy infrastructure, aiming to double renewable electricity capacity by 2027.
While acknowledging these challenges, market participants need to be agile and proactive in adjusting strategies to mitigate risks and capitalize on new opportunities. Understanding these geopolitical dynamics is essential for navigating the uncertain global landscape effectively.
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