To start with a quick follow up on last week’s note, my BBC 4 radio documentary on ‘Waking up to World Debt’ is now out and available to listen to on this link. Then to continue the theme of looking into the future, regular readers of this note will know that David Skilling and I produce, amongst other strategy work, outlook notes.
Last year we wrote that 2023 would be a year of ‘war by other means’, with multi-spectrum strategic competition between the big powers across trade, finance, technology, as well as military domains. And this is what we have seen over the past year: friend-shoring and economic de-risking is evident in the data, with trade, investment, and technology flows being shaped by geopolitical alignment.
As we look into 2024, we expect that intense strategic competition between countries will become even more pronounced. There is a self-perpetuating, expansionary logic to strategic competition as big powers respond to each other and reduce their exposure to rivals.
This strategic competition may be managed but, in our view, it will not be reversed: global economic fragmentation will intensify as countries are forced to pick sides. Competing in the law of the jungle, with a more adversarial, less rules-based system, will be particularly challenging for small open economies.
And competition between ‘friends’ will become increasingly common: there is growing economic competition between the US and the EU, with competing industrial policies; and expect tensions between China and emerging markets as China exports over-capacity. Protectionist measures will become more common as competing growth models increasingly cause geopolitical frictions.
Outside of geopolitics, competition will be seen elsewhere across the global system through 2024. It will be a year of the great political contest, with multiple deeply consequential elections happening around the world – about 40% of the world’s population votes in national elections in 2024. The US Presidential election is the big one to watch, with major global economic and political impacts likely.
Competition between monetary and fiscal policy will become more evident, with higher for longer interest rates creating stresses around a highly-indebted world. The global financial system has been relatively robust, but stresses continue to accumulate. Don’t relax too quickly as inflation and rates come off. Structural inflationary pressures remain, and unconventional policy choices are increasingly likely.
And there will be growing competition between labour and capital, as labour markets tighten both in the near-term and increasingly over time as working age populations contract in many countries. The balance between labour and capital is changing, and firms, investors, and policy-makers will need to adapt.
Increasingly sharp, visceral competition – much less defined by norms established over the past few decades – is the common theme behind these five dynamics that we expect to characterise 2024. Politics will continue to be at the centre of global developments through 2024, reinforced by economic tensions: sluggish growth, high debt levels and sticky rates, and cost of living pressures.
In a more fluid global economic and geopolitical environment, tail risk events become much more likely: few picked the Russian invasion of Ukraine in 2022 or the scale of the Hamas attacks on Israel in 2023. So we conclude by suggesting several wild cards to watch in 2024 – not predictions, but events worth considering – as well as identifying several risks that we don’t think merit too much concern.
The world may be due a quiet year after a succession of crises and shocks: pandemics, wars, inflation, and so on. This is possible: geopolitical guardrails may be established; immaculate disinflation may occur; the political centre may hold; and policy decisions may manage fragmentation costs. But the strategic dynamics at work make a quiet year (unfortunately) unlikely.
In coming weeks, I will share specific parts of the note, and if you would like a copy of the full note, do let me know.
Have a great week ahead,
Mike
The Levelling 