Global Economic Prospects Amid Geopolitical Turmoil
Geopolitical Report ISSN 2785-2598 Volume 43 Issue 3
SpecialEurasia OSINT Unit
Executive Summary
The World Economic Forum’s (WEF) latest Chief Economists Outlook presents a cautiously optimistic view of the global economy despite ongoing geopolitical conflicts and domestic political volatility.
Only 17% of experts predict a decline in macroeconomic conditions for the current year, marking a significant reduction in pessimism compared to earlier forecasts. The report highlights the resilience of economic growth despite geopolitical instability, with almost 70% of leading economists predicting a return to 4% global growth in the next five years.
This analysis will delve into the WEF’s findings, examining the implications for geopolitics and the ensuing risks.
Background Information
The WEF’s Chief Economists Outlook for May 2024 underscores a brighter short-term economic outlook compared to earlier in the year. The report reveals a notable shift in expert sentiment, with only 17% of economists expecting a deterioration in macroeconomic conditions, down from 56% in January 2024. Despite the enduring uncertainties and volatility linked to international and domestic political developments, the forecast for global economic growth appears more promising.
The outlook shows that 97% of respondents foresee international geopolitics driving economic volatility throughout 2024, while 83% identify domestic politics as a significant risk factor, especially considering the extensive electoral activities globally.
Regional economic prospects exhibit considerable variability. Economists expect Asian economies, particularly in South Asia and the Pacific, to maintain robust growth. However, weak consumption and property market challenges temper expectations for China, with only 4% forecasting strong growth. Conversely, Europe faces a bleak economic outlook, with nearly 70% of respondents predicting weak growth.
Inflation forecasts also vary by region but indicate a trend towards moderation. In Europe, the expectation of moderate inflation remains unchanged at 57%. For China and East Asia, a significant proportion of economists expect low or very low inflation.
Geopolitical Outcomes
The WEF report underscores the deep impact of geopolitical factors on the global economy. The persistent geopolitical tensions, notably the conflicts in the Middle East and Ukraine, and Western sanctions against Russia, underscore the interconnectedness of global economic and political landscapes. These tensions contribute to sustained economic volatility, as nearly all chief economists predict for 2024.
Such geopolitical conflicts can lead to significant disruptions in global supply chains, energy markets, and trade routes, influencing everything from commodity prices to currency stability.
For instance, the ongoing Ukraine conflict has not only devastated the regional economy but also led to substantial disruptions in global grain and energy supplies. The Black Sea region, a crucial hub for agricultural exports, has seen severe interruptions, causing ripple effects in global food prices and exacerbating inflationary pressures in importing countries.
Because of the Western sanctions on Russia, there has been a reshuffling of energy markets. In response, Europe is now actively searching for alternative gas sources, leading to a surge in global demand and prices.
The influence of domestic politics on economic stability is equally pronounced. With over half of the global population participating in elections, political outcomes in various countries will critically shape economic policies and market confidence.
In democracies experiencing high political polarisation, legislative gridlock and uncertainty over policy directions can dampen business investment and consumer confidence. For example, contentious debates over fiscal policies and regulatory reforms can lead to delays in critical infrastructure projects and affect long-term economic growth prospects.
Emerging markets face distinct challenges as well. In Central Asia, local governments, supported by international and regional players, must address pressing socioeconomic issues, including terrorism and jihadist propaganda, alongside water scarcity and management. These challenges require coordinated efforts to improve living conditions and ensure stability. The success or failure of these efforts will significantly influence regional stability and economic prospects.
Recent protests in Armenia and Georgia in the Caucasus region highlight the delicate relationship between socioeconomic conditions and foreign policy. Socioeconomic grievances, if not adequately addressed, can fuel public discontent and destabilise the region. Central authorities must navigate these complex dynamics to prevent further exacerbation of tensions, which could impede economic development and investment.
The Eurasian chessboard presents another layer of complexity. The terror attack in Russia and the series of arrests of suspected Islamic State militants in Europe underscore the intricate linkage between geopolitics and economic conditions.
Economic development can provide stability by improving living standards and reducing poverty. However, economic disparity and inequality can exacerbate local tensions, pushing marginalised populations, such as migrants, towards radicalisation and recruitment by terrorist groups. This dual-edged nature of economic conditions necessitates balanced and inclusive growth strategies to mitigate security risks.
Technological advancements and the transition to a green economy emerge as potential growth drivers. However, the uneven distribution of their positive impact may favour high-income countries.
For instance, the adoption of renewable energy technologies and electric vehicles is advancing rapidly in Europe and North America, supported by substantial government incentives and investments. Conversely, lower-income countries may struggle to keep pace due to limited financial resources and technological infrastructure, widening the global economic divide.
The geopolitical landscape’s volatility can also affect the global energy transition. Geopolitical strategies can influence the shift towards renewable energy sources, such as China’s dominance in the production of rare earth elements essential for green technologies. Any geopolitical friction involving China can disrupt the supply chain for these critical materials, impacting the global progress towards sustainable energy solutions.
High levels of public and private debt in numerous economies limit the fiscal space available for governments to respond to economic shocks and invest in growth-promoting activities. For instance, in Southern Europe, countries like Italy and Greece continue to grapple with high debt burdens, restricting their ability to stimulate their economies effectively.
Climate change remains a looming threat with geopolitical dimensions. Extreme weather events, driven by climate change, can exacerbate resource scarcity, leading to conflicts over water, food, and energy resources. For example, prolonged droughts in regions like the Middle East and Sub-Saharan Africa can intensify socio-political tensions, driving migration and potentially leading to regional instability.
Conclusion
The WEF’s Chief Economists Outlook for May 2024 paints a nuanced picture of the global economic landscape.
While the forecast shows a brighter short-term economic outlook and potential for a return to 4% growth within five years, substantial risks remain. Geopolitical conflicts and domestic political volatility are expected to cause economic uncertainty throughout the year.
For policymakers and business leaders, understanding and mitigating the interplay between geopolitics and economic dynamics will be crucial in steering the global economy towards sustained growth and stability.
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