By Alvaro Carrasco
In an era marked by escalating geopolitical tensions and evolving power dynamics, understanding the implications for businesses, investors, and global affairs is critical. This article delves into the complex interdependencies and shifting alliances that characterize the current geopolitical landscape, setting the stage for a comprehensive analysis of expected developments in 2024. Significantly, the year 2024 is marked by a global elections Supercycle, with countries accounting for about 54% of the global population and nearly 60% of global GDP going to the polls.
Table of Contents
Anticipated Global Developments in 2024
- Global Geopolitical Realignments and Elections: The global political landscape in 2024 is poised for substantial shifts due to key elections in major economies. These include the U.S. midterm elections with a focus on foreign affairs and domestic policies, the German federal election influenced by a surge in young voters advocating for climate action, and the Japanese general election centered on economic recovery post-pandemic. Additionally, elections in emerging economies like Brazil and India are expected to act as catalysts for economic and environmental policy shifts, significantly influencing global markets.
- US-China Relations – A Broader Impact: The dynamic of US-China relations continues to evolve, impacting a diverse range of industries. A revealing study from the Federal Bank of St. Louis paints a vivid picture of the evolving landscape. It traces the roots of substantial economic shifts to the US-China trade war, which has notably dampened US demand for Chinese goods. The repercussions for US consumers and importers have been significant – a $3.3 billion loss, approximately 0.05 percent of the gross US output. As these two global powers continue to navigate their complex relationship, their strategies and interactions are set to redefine the contours of global trade and economics, stretching their influence well beyond conventional boundaries.
- Middle Eastern Geostrategic Shifts: The Middle East is undergoing a transformation, with Saudi Arabia’s pivot from oil under Vision 2030 and Iran’s increasing influence in the region, as seen through its support for Hezbollah in Lebanon. These developments indicate a significant reconfiguration of economic and political power in the traditionally oil-dependent region.
- Climate Change Initiatives Post-COP28: The global response to climate change is gaining momentum, particularly following COP28 in Dubai. Nations are uniting to reduce fossil fuel reliance, with significant pledges towards ambitious emission targets and renewable energy. The UAE Consensus and other initiatives signal a global shift towards more assertive climate policies, though challenges remain in meeting the 1.5° C warming limit.
- Technological Advancements and Outsourcing in Emerging Markets: India’s general election is set to influence global technology and outsourcing markets. Decisions made here will have a far-reaching impact on how technology is leveraged and outsourced globally, affecting both emerging and established markets.
- Environmental Policies and Economic Implications: Brazil’s presidential election is critical, with policies concerning the Amazon Forest having global environmental implications. The decisions made will be pivotal in shaping global environmental strategies and highlight the interconnection between environmental policies and global economic trends.
Market Changes and What to Expect
As we progress from analysing the intricate geopolitical landscape and key global events, our focus now shifts to the anticipated market changes in 2024. By interlinking these geopolitical and economic elements, we´re poised to uncover the challenges and opportunities that the global markets may present. This integrated approach readies us for a spectrum of scenarios, from emerging economic prospects to potential market fluctuations.
- Global Economic Resilience and Recovery Post-Pandemic: The global economy is poised for recovery post-pandemic, with a projected average GDP growth rate of around 3.5%, led by emerging markets like India and China. Key indicators such as consumer spending and industrial production are expected to rebound, supported by fiscal stimulus measures. Significantly, median core inflation for both Emerging Markets (EM) and G10 countries is approaching centra bank targets by 2024, signalling economic stabilization. 2024 is expected to see favourable returns across commodities, global equities, global credit, and DM 10-Year Government Bonds, reflecting growing confidence in financial markets and the broader economic recovery.
- Shift in Monetary Policies and Inflation Dynamics: Global monetary policies and inflation dynamics are undergoing a significant shift. Central banks in both developed and emerging markets are steering inflation rates closer to their targets, indicating a more balanced approach to policy-making and moving away from a narrow focus on inflation control. Currently, the post-Global Financial Crisis era of low yields and inflation is ending, with real yields on various asset classes returning to pre-crisis levels. However, this transition poses challenges, particularly in emerging markets and Europe, where higher US interest rates have aggregated financial distress and debt sustainability concerns (see graph below).
The alignment of US Treasury Forward Rates with historical norms signals a return to traditional monetary policy settings, underscoring a broader movement towards economic stabilization and a gradual reversion to pre-pandemic conditions.
- Technological Innovation and Digital Economy Expansion: The digital sector´s growth, exceeding 10% annually, significantly contributes to global GDP, driven by robust investments in AI and 5G technology. The Us tech spend is forecasted to grow by 5.5% in 2024, with similar trends in Australia, indicating a global surge in digital investment. Leading companies like Accenture and Google are pioneering AI advancements, revolutionizing various industries. The rapid adoption of 5G underpins next-generation digital connectivity, essential for IoT and smart cities. Cloud computing is also pivotal, with public cloud spending expected to reach $678.8 billion in 2024. This growth is particularly notable in North America and the Asia Pacific, where digital transformation is accelerating in both large enterprises and SMEs.
- Energy Transition and Focus on Renewable Resources: Renewable energy sources are rapidly expanding, with projections indicating that they will account for more than one-third of global power supply by 2024. This growth is fueled by a 50% increase in renewable energy capacity in 2023, reaching almost 510 gigawatts (GW), led by solar photovoltaic (PC) which accounts for three-quarter of the additions worldwide. China, in particular, has commissioned as much solar PV in 2023 as the entire world did in 2022. While its wind power additions rose by 66% year-on-year. In the European Union, renewable energy expansion is expected to more than double during 2022-2027, driven by ambitious targets and policies under the REPowerEU package. The US, following the extension of tax credits for renewables until 2032, is set to see almost double the renewable energy expansion from the last five years. Similarly, in India, new installations are expected to double over the forecast period, primarily driven by solar PV.
- Geopolitical Tensions and Their Economic Implications: The current geopolitical landscape is significantly impacting the global trade and economic activities. Trade volumes are experiencing fluctuations de to increasing tensions. For instance, Europe´s GDP growth stalled in the second half of 2023, primarily due to weaker household consumption and reduced global trade. The energy price shock from Russia-Ukraine war, coupled with high interest rates, has le to a slowdown in manufacturing growth and business activity in Europe. Similarly, external demand for goods and rising protectionism are impacting other export-oriented economies in Asia, particularly China, where exports declined by 5% in 2023 compared to 2022. In this precarious environment, diplomatic efforts will be crucial in mitigating economic impacts.
- Natural Resource Management and Environmental Policies: The year 2024 is expected to be pivotal for the carbon capture, usage and removal sector. Projects like the Stratos project in Texas and Climeworks in Iceland are set to capture 530,000 tons of carbon from the atmosphere annually. Policy developments are paving the way for more rigorous climate action. For instance, changes in tax credits for renewable energy generation, regardless of the technology used, are incentivizing businesses to adopt zero-emission technologies. These challenges are further exacerbated by economic conditions, which are increasing the cost of clean energy investments and placing new demands on existing infrastructure. The imperative of energy security and the striking growth in energy consumption highlights the pressing need to accelerate renewable energy development and overcome the hurdles tied to cost, grid and infrastructure issues.
- Financial Market Volatility and Investment Strategies: Vanguard´s 2024 outlook indicated that higher interest rates, while leading to increased market volatility, are beneficial for long-term, well-diversified investors. They project a strong foundation for risk-adjusted returns going forward, especially for investors in balanced portfolios. Vanguard´s global outlook underscores the effectiveness of a 60/40 portfolio strategy, arguing that it has increased the probability of achieving a nominal return of 7% for long-term investors.
2024 Global Markets Insights, So Then?
From the geopolitical shifts influenced by a series of significant elections to the evolving dynamics of US-China relations, the impact of these changes is profound and far-reaching. The Middle East´s strategic transformation, global initiatives against climate change, the burgeoning technological and digital economy, and the crucial energy transition all paint a picture of a world in flux, balancing between recovery and new challenges. The global economy shows resilience with a promising trajectory, yet it grapples with shifting monetary policies and the implications of technological innovation. The energy sector´s pivot towards renewables marks a significant step towards a sustainable future, but not without its challenge, especially considering the current geopolitical tensions and their economic repercussions.
As we look towards the future, these insights and analysis not only provide a roadmpa for understanding potential market changes but also raise critical questions about how these developments will unfold. How will the gloal political and economic landscape adapt to these changes, and what will be the long-term impact on global markets? Are we prepared for the possible ramification of these shifts? and how can businesses and investors strategize to navigate this complex terrain?
