The risk map for 2024: the radar points to geopolitical tensions and central banks

The global economy has already settled into a dynamic that the International Monetary Fund (IMF) defines as “propensity to shocks.” The world began the decade with a pandemic that almost completely froze activity, followed by a major distribution jam that lit the spark of inflation and later the war in Ukraine ended up spreading the flames. This year the economy is expected to grow, but weakness will be the trend in regions such as the euro zone. The risk map grows. Geopolitical tensions no longer only come from Moscow and Beijing, but also from Israel and the Red Sea, especially since in recent hours the United States and the United Kingdom have launched air strikes against several cities controlled by the Houthi rebels in Yemen. Rate increases, in addition, can hit the economy more than necessary and China's real estate market continues to pose a threat to economic stability. This is the map of the main risks of 2024.

Geopolitical tensions. International institutions see the risks derived from political crises almost as a kind of “new normal.” In 2022, the Ukraine war hit commodity and energy markets, sending prices soaring. The war in Gaza poses a new challenge. The main fear was another rise in the price of oil. According to the IMF, a 10% increase in crude oil prices reduces global gross domestic product by about 0.2% and increases inflation between two and four tenths. That, for now, has not happened. The other fear is the spread of new disruptions in trade, which practically stagnated last year.

The focus has now been placed on the instability in the Red Sea, through which 12% of world trade passes. Following the attacks by the Houthi militia from Yemen, most shipping companies had decided to change routes and divert their merchant ships towards the Cape of Good Hope, in southern Africa, to avoid kidnappings and drone attacks by the Houthi militia. rebels The measure means between 10 and 14 more days of travel, and therefore implies delays and increases in the deliveries of goods and raw materials such as gas or oil, which in the past crossed the Red Sea and entered the Mediterranean through the Suez Canal. .

Furthermore, 2024 will be a year of intense electoral activity. There are chances that Donald Trump will return to the White House, which could alter the course of the economy. In addition, there are elections scheduled in the United Kingdom, India and the European Parliament, where the strength of far-right populist parties will once again be tested. “Geopolitical conflicts are increasing, productivity in industry, culture and politics has all but disappeared and we are immersed in meaningless nonsense in a world that desperately needs solutions for clean water, flood protection, climate change, inequality, defence, cybersecurity, education and infrastructure,” says Steen Jakobsen, Chief Investment Officer at Saxo Bank.

Interest rates. Central banks around the world had to raise interest rates abruptly and practically from zero. The monetary authorities have since exercised extreme caution, also in the so-called shadow banking (non-bank lenders, such as pension funds, insurance companies and even hedge funds). Even so, they have not been able to avoid episodes of instability, such as the one that put US authorities on edge last spring in the US, where regional banking, led by Silicon Valley Bank, shook the global financial table. “What we saw were early signs of weakness. And I think they should be taken seriously, more than what was done,” former Bundesbank president Axel Weber said recently in Madrid.

Not only that. Analysts believe that central banks could derail the so-called soft landing, especially in Europe, if the process of falling inflation is not accompanied by a coherent monetary policy. Or what is the same, if rates are not lowered to adapt them to the new reality. For now, the ECB has only given signs that it will not continue to raise the price of money, but it does not want to talk about declines.

Inflation. Experts assume that inflation will continue to ease. Energy prices continue to decline, while food prices are moderating. However, the war against rising prices cannot be over. Climate change has made extreme events, such as droughts, increasingly more frequent. And that threatens to make this type of food price increases structural, as is happening with olive oil, which has not yet reached its ceiling due to poor harvests. At the same time, geopolitical tensions can once again amplify energy problems, although that flank, that of the normalization of oil and electricity prices, has been one of the positive points of 2023.

In Europe, the ECB continues to monitor domestic inflation variables. In her last appearance, the head of the Eurobank, Christine Lagarde, referred to salary increases and business margins, but she used Frankfurt's usual prudence. “We need more data to better understand what is happening,” she said.

China. The Asian giant is no longer the most populous country in the world – India surpassed it in April – but it continues to be the engine of global growth, although with increasing difficulties. Analysts are especially concerned about its real estate sector, whose valuations could remain inflated. Hence the problems of some of its real estate agencies, such as Evergrande or Country Garden. Recently, in addition, the shadow bank Zhongzhi declared itself insolvent with a hole of 33,000 million euros, which once again set off alarm bells.

Beijing's intervention to avoid a crisis is sufficient for now. The growth rate for 2023 will be around the 5% that had been proposed, but China and the end of its economic miracle have become a fixture on the lists of possible black swans that can change the pace of the planet. No one can answer exactly when it will happen or the power of its impact, and perhaps that is one of the arguments that can most reassure the Chinese authorities: its entry into a phase of turbulence has been announced for years, but this decline in Hell doesn't just happen.

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