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RIZA MEHMET KORKMAZ
UGM General Manager
Western economies performed better than expected in 2023; However, the situation is not yet entirely under control. It is predicted that central banks, especially the FED, will continue the interest rate reductions they have initiated in 2024, drawing the interest weapon against high inflation. The economic consequences of successive crises in recent years, especially the impact of interest rate increases made to balance the most significant inflation rise in the last 40 years after the 2022 energy crisis, will emerge more clearly in 2024. Meanwhile, the rapid increase in countries' borrowings to combat COVID-19 and the already tightening financing conditions due to the impact of the war in Ukraine will further limit financial markets. In such an environment, growth will also be slow.
If geopolitical risks become stronger, global growth and inflation will be negatively affected. Therefore, a stagflation environment in which stagnation and inflation coexist may also emerge. Considering that the total debt in the world exceeds $300 trillion, a severe slowdown in growth will also deeply affect the financial sector. Therefore, geopolitical developments must be closely monitored to predict the economy.
The development of China, which faces the lowest economic growth of the last 35 years with 3% growth in 2022, excluding the COVID-19 years, and bears the burden of imbalances such as excessive debt accumulation and dependence on foreign demand, should be monitored carefully. The US's attitude towards China in strategic competition and limiting its purchases, while the Chinese leadership prioritizes economic security rather than growth, will also reduce China's exports and capital attraction capacity. The severe recent decline in foreign direct capital flows to China is also an indicator of this.
The world has been shaken by incredible developments in recent years. Ten years ago, if it had been said that there would be a pandemic outbreak all over the world and the world would virtually shut down or that Russia and Ukraine would enter a war in the heart of Europe, no one would have believed it. Unfortunately, these developments, which no one could have predicted, happened, and their effects continue to be felt in our lives.
We entered the last quarter of 2023 with the Israel-Hamas conflict. The year 2024 greeted us with a world conjuncture in which the Russia-Ukraine War and the Israel-Hamas conflict continue, and peace has not yet been established. In today's world, evaluating the global economy independently of political developments is impossible. Considering that geoeconomic instruments (international sanctions, cyber-attacks, preferences in the trade of energy resources and commodities, mega projects and tenders, ways of using credit resources, credit scores, selectivity in suppliers, etc.) are also used extensively in political tension and power struggles between countries, we see that the world economy While trying to predict its course, it is necessary to examine political and sociological developments.
With the increasing blockade in armed conflicts, the redrawing of the map of global energy resources, and the rapid advancement of technology, especially artificial intelligence (AI), The world is changing at a mind-blowing pace. From the situation in the Middle East to the adoption of electric vehicles, From social isolation to rising nationalism, everything looks much different than it did a year or two ago. In this article, we will discuss the world economy for 2024 under the following primary headings, taking into account the fundamental trends and predictions and political and sociological developments that will directly affect our lives.
ECONOMIC UNCERTAINTY
Western economies performed better than expected in 2023; However, the situation still needs to be entirely under control. It is predicted that central banks, especially the FED, will continue the interest rate reductions they have initiated in 2024, drawing the interest weapon against high inflation.
The economic consequences of successive crises in recent years, especially the impact of interest rate increases made to balance the most significant inflation rise in the last 40 years after the 2022 energy crisis, will emerge more clearly in 2024. Meanwhile, the rapid increase in countries' borrowings to combat COVID-19 and the already tightening financing conditions due to the impact of the war in Ukraine will further limit financial markets.
In such an environment, growth will also be slow. The International Monetary Fund (IMF) does not expect inflation to return to the target of most central banks until 2025, especially in the event of renewed pressure on oil prices amid geopolitical uncertainty. This means interest rates will remain high for a long time. The IMF's global growth forecast 2024 is 3.1%, the same as the 2023 growth rate and below pre-pandemic growth rates.
The US has avoided recession thanks to the strength of the labor market and fiscal stimulus. This means it will have a softer landing. The decrease in inflation and the increase in salaries in the USA in 2024 may provide some economic relief.
In the European Union (EU), the sharp increase in public borrowing, first to fight the Covid-19 pandemic and then to support Ukraine at war with Russia, the entry into force of the reform of financing conditions and EU fiscal rules, especially those with financial leeway, such as Italy. It requires more careful monitoring of the public accounts of countries with small amounts.
"Fiscal discipline" will also come to the fore in the new budget (MFF) negotiations, which include the EU's biggest wishes (support for Ukraine, support for industrial policy, green transformation, defense, migration, or an increase in appropriations for the Global Gateway project). However, these demands will face a stark reality: "a lack of resources and the difficulty of agreeing to increase appropriations." The adoption of the European Economic Security Strategy and the outcome of the anti-dumping investigation into China's subsidies for electric vehicles will determine whether, on the economic front, the EU chooses to align itself with the US in its strategic competition with China or the EU advocates a reformed globalization will try to be.
The development of China, which faces the lowest economic growth of the last 35 years with 3% growth in 2022, excluding the COVID-19 years, and bears the burden of imbalances such as excessive debt accumulation and dependence on foreign demand, should be monitored carefully. The US's attitude towards China in strategic competition and limiting its purchases, while the Chinese leadership prioritizes economic security rather than growth, will also reduce China's exports and capital attraction capacity. As seen in the table below, the recent severe decline in direct foreign capital flows to China indicates this.
China, which has an unfavorable demographic structure, has yet to be able to use domestic consumption as the engine of growth and relies heavily on foreign demand, increasing its economy's fragility. Developing economies, especially those with more significant trade and financial dependence, will feel the impact of the economic downturn in China. The success of the Belt and Road Initiative in terms of investment volume has been overshadowed by difficulties in repaying up to 60 percent of loans. Faced with this situation, the Xi Jinping administration switched to a new investment-drive policy focusing on smaller projects. In 2024, how China's new role as a lender of last resort and its participation in debt restructuring processes of distressed countries is perceived will become even more critical in terms of its geo-economic impact on the Global South. On the other hand, India takes the leadership in growth rates from China.
Growth and inflation will be negatively affected, especially if geopolitical risks become more robust. Therefore, a stagflation environment in which stagnation and inflation coexist may also be foreseen. Considering that the total debt in the world exceeds $300 trillion, the severe slowdown in growth will also profoundly affect the financial sector. Therefore, geopolitical developments will need to be closely monitored to predict the economy.
2024 IS THE ELECTION YEAR IN THE WORLD
2024 stands out as an election year all over the world. Approximately 4.2 billion people will vote in the elections held in 76 countries this year. In other words, for the first time in world history, there will be elections in countries that host more than half of the global population. But while there may be more elections than ever before, elections will not bring more democracy. Unfortunately, most elections will be neither free nor fair.
The Presidential Elections in the USA, where Donald Trump will probably be the re-candidate of the Republican wing, are of particular importance. The attitude of the previous US President Trump regarding the Ukraine-Russia War, the function of the USA within NATO, conflicts in the Middle East, climate change debates, trade wars with China, the Taiwan issue, and many other global issues have been determined since the election campaign. It will radically affect the course of the world. Again, the elections to be held in India, Mexico, Indonesia, Russia, and Ukraine, as well as the European Parliament elections, have consequences that will affect world politics.
We can predict that the rise in nationalist movements observed worldwide in the 2023 elections will continue in the 2024 elections. The increasing weight of the nationalist right in the European Parliament after the elections to be held on 6-9 June 2024. The future of the EU's climate commitments will be decisive on vital issues such as the continuation of aid to Ukraine and expansion with new members.
THE RISK OF THE SPREAD OF THE HAMAS-ISRAEL CONFLICT IN THE MIDDLE EAST
Following the widespread attack launched by Hamas's armed wing, the Izz ad-Din al-Qassam Brigades, across Israel on October 7, 2023, Israel's counter-attack and blockade of Gaza pushed the region into great chaos with dramatic scenes. In the conflicts in which more than 30,000 Palestinians and approximately 1,500 Israelis have died so far, 1 million people have been left homeless; Gaza has turned into ruins. In particular, the attacks of the Houthis in Yemen in the Red Sea, the partial clashes between Hezbollah forces and Israel in Lebanon, and the occasional escalation of tension between Iran and Israel have increased concerns that the Israel-Hamas conflict could turn into a wider regional war. Frankly, it is unknown whether there is still a chance for peace. The possibility of the war spreading to the region increases the risks to the world economy and the human tragedy caused by the hot conflict in the heart of the world's primary energy resources.
2023 has been a violent year in the world. It is estimated that 1 in 6 people worldwide have been exposed to conflict in the last twelve months. The idea that the perpetrator gets away with it, the feeling of impunity, the dysfunctionality of international security mechanisms, the disregard of international law, and the indifference of the world public opinion are gradually taking root and encouraging some countries to use disproportionate force.
SUEZ CANAL ISSUE
One of the consequences of the Israel-Hamas conflict for world trade is the security problems experienced in the Bab-el Mandeb Strait at the entrance of the Red Sea after the attacks of the Houthis based in Yemen on ships that wanted to use the Suez Canal and, subsequently, the de facto closure of the Suez Canal. Became less used. Today, more than 80% of world trade is transported by sea, and 12% uses the Red Sea route.
According to UNCTAD's findings, Due to attacks in the Red Sea, weekly passages through the Suez Canal have decreased by approximately 42% as of February 2024.1 Large container ships passing through the Suez Canal, where 22,032 ships pass annually in 2022, pay roughly $657,000 for a one-way passage. The loss of Egypt, which earned 9.4 billion dollars in revenue from the Suez Canal in 2023, is increasing daily due to the crisis. Egypt is estimated to lose more than half a billion dollars in revenue in the first two months, starting from the end of November 2023, when the attacks began.2
Due to the problems in the use of the Suez Canal, the prices of 40-foot containers, which were $ 1,342 in October 2023, rose to $ 3,964 at the end of January 2024 and then decreased to $ 3,287 as of the beginning of March 2024, as alternative routes were turned to alternative routes. If the security problems in the Suez Canal cannot be overcome, increasing logistics costs will continue to pressure foreign trade in 2024.
DIFFICULT PROFIT FOR THE EUROPEAN UNION IN THE RUSSIAN-UKRAINE WAR, THE RISK OF NUCLEAR WAR
The failure to achieve peace in the Russia-Ukraine War, which has been going on for more than two years, Russia's increasing effectiveness in the war, Ukraine's inability to receive the full support it wants from the Western world, and the possibility of complete cessation of US support after the elections in the USA, Ukraine's loss of weapons and supplies. The problems it is experiencing in ammunition supply and Russia's threats to use nuclear power are pushing the European Union to make a serious decision about how it will support Ukraine in this war. For Ukraine not to lose in this long-running war, providing more military and financial support and even Ukraine's admission to the EU may be on the agenda. The second half of 2024 will be taut as Hungary, the EU country most reluctant about military aid and Ukraine's possible accession to the EU, takes over the EU presidency.
The Ukraine conflict also served as a mortar that strengthened the transatlantic union in 2023 and brought the EU and the USA together against the Global South, which questioned the West's double standards. In 2024, the war in Ukraine may increase the distance between Washington and Brussels with Trump's influence.
On the other hand, the Russia-Ukraine War caused severe disruptions in the grain supply to the world from this region, which is one of the world's grain warehouses. In addition, more than 14,000 regulations are imposed on Russia, which accounts for 11.9% of world oil production (3rd in the world) and 22.2% of natural gas production (2nd in the world) and is one of the world's most important energy suppliers (2nd in the world in natural gas exports). Sanctions also stand as an obstacle to stabilization in energy prices.
NEW ENERGY GEOGRAPHY
With the transition to renewable and clean energy, we face a new energy geography representing "the emergence of new green superpowers and the redrawing of the map of energy resources." In the coming period, lithium, cobalt, nickel, and copper elements, which are the essential components of lithium-ion batteries used in renewable energy storage systems and electric vehicle batteries, and rare elements such as neodymium, dysprosium, silicon, tellurium, and cadmium, which are also used in renewable energy, will be of much greater importance. The effectiveness and power of the dominant countries will also increase.
The world's leading lithium producers include Australia, Chile, Argentina and China. While Australia accounts for a large portion of global lithium production, Chile and Argentina stand out as countries with significant reserves in South America's "Lithium Triangle." Most world cobalt production occurs in the Democratic Republic of Congo (DRC); other producers include Russia, Australia, and the Philippines. Indonesia and the Philippines are the world's leading nickel producers; Russia, Canada, and Australia are among the essential nickel producers. China is the world leader in rare earth elements, accounting for most global production. Other sources include Australia and the USA.
Competition for green resources reshapes geopolitics and trade and creates some unexpected winners and losers. These new energy sources will determine the geopolitics of the coming period. Meanwhile, a significant portion of people see climate-friendly policies as “a conspiracy of elites against ordinary people.”
TRANSITION TO MULTIPOLAR WORLD ORDER, LOCALIZATION, AND THE NEW COLD WAR ERA...
After the Cold War, the collapse of the Union of Soviet Socialist Republics (USSR) and the dissolution of the Communist Bloc brought a new world order in which the USA remained the only superpower. Russia, which has slowly recovered with its oil and natural gas revenues over the past 30 years; China, which has become the world's second-largest economic power with growth averages approaching double digits; and new power centers such as India, Indonesia, Mexico, and Brazil with their growing economies, have strengthened the hegemonic power of the USA in the world. Shook. Faced with this reality, the USA plans to return to Asia and focus more on its competition with the rising China. It has deviated somewhat from its goals due to the war in Ukraine and now in Gaza. The world is now preparing for more conflict as the United States' "unipolar era" is over.
As China's growth slows, tensions rise over Taiwan, and the United States continues to limit China's access to advanced technologies, the "new cold war" rhetoric is hardening. However, Western companies trying to reduce their dependence on China in their supply chains realize that this is not easy. Meanwhile, both sides are showing interest in the “middle powers” of the Global South, especially their green resources. While frozen conflicts such as Azerbaijan-Armenia and Israel-Hamas are flaring up in various parts of the world, local cold wars and instability are escalating across the globe.3
Ongoing geopolitical tensions will increase global and stock market volatility in the next three years. Experts also predict an increase in localization, the strengthening of geoeconomic blocs, and a widening divide between the Global North and South over the next three years. According to the IMF, the potential loss of global economic output due to increased trade restrictions could be as high as 7%. Low-income economies are also likely to bear a much larger cost (potentially reaching 4% of GDP) than developed economies.
SOUTH-NORTH SEPARATION
The contradictions and fragmentations of the North-South approach will become more evident than ever in 2024. The Global South has established itself as a "key actor" in opposition to the West on anti-imperialist grounds or double-standard approach arguments. The BRICS bloc (Brazil, Russia, India, China, and South Africa) will further reinforce this opposing bloc with the participation of Saudi Arabia, Egypt, the United Arab Emirates, Ethiopia, and Iran in October 2024, when it will meet in Russia to formalize its expansion. The new BRICS, which includes two of the world's three largest oil producers, accounting for 46% of the world's population and 29% of global GDP, will have an even stronger voice. On the other hand, the election of Javier Milei, who decided not to join BRICS as president in Argentina, is a sign of the conflict of agenda and interests in the Global South. Saudi Arabia and Iran compete for strategic influence in the Persian Gulf. India and China have their border disputes in the Himalayas. The Global South will continue to gain influence, But it will also become more heterogeneous, and its internal conflicts will continue to increase.
The Global South is multi-regional and multi-dimensional and consists of different political regimes. However, this is also a geographical area where global trade flows are consolidating due to globalization. The latest World Trade Organization (WTO) annual report also confirms that although developed economies are still key players in world trade, they are no longer dominant. However, while India will be the symbol of this potential leadership of the Global South in 2023, this time, it will be Latin America that will try to assume a central role in 2024. Brazil will host the G20 this year, and Peru will host the Asia-Pacific Economic Cooperation (APEC) summit.
It expresses a narrow-minded perspective that the United States and the European Union perceive their relations with Latin America solely as an area of resource exploitation and geopolitical disagreement with China. For now, the repeated failure of negotiations on the EU-MERCOSUR agreement also dashes hopes of increasing South America's commercial presence in the European single market. Negotiations will continue in the first half of 2024 after Paraguay takes over the MERCOSUR (South American Common Market) presidency from Brazil.
DECLINE IN COMPLIANCE WITH INTERNATIONAL COMMITMENTS
With the acceleration of the ecological crisis, record migration and forced displacement, hot conflicts, and an apparent decline in the gender equality agenda, 2023 has left cooperation in complying with international commitments in tatters. Using increasingly harsh language, UN Secretary-General António Guterres declared that the world was "sadly off track" in achieving the Sustainable Development Goals (SDGs) by 2023, halfway to 2030.
The International Energy Agency (IEA) predicts for the first time in its World Energy Outlook 2023 that "global demand for oil, coal, and natural gas will reach a high point this decade" based solely on current policy adjustments. Fossil fuel-producing countries plan to increase coal, oil, and gas extraction, ignoring climate warnings.
ARTIFICIAL INTELLIGENCE IS COMING TO REALITY
Since generative AI burst onto the scene in late 2022, the potential use cases for the technology have increased rapidly. As of May 2023, economists highlighted how AI would cause significant changes and new challenges for businesses and policymakers. The World Economic Forum's latest survey of chief economists shows that 50% of respondents expect the technology to become disruptive, especially for advanced economies, by the end of 2024 (versus 42% in 2023).4
Businesses are now adopting artificial intelligence more. On the one hand, legal regulations are being completed, and on the other hand, technology experts continue to develop this field. Unexpected uses and abuses can undoubtedly occur at any time. In this context, there are many concerns about the negative impact of artificial intelligence on employment and its potential to interfere with elections. On the other hand, we will see the most significant real impact of artificial intelligence as "faster coding."
INCREASED SOCIAL ISOLATION
Society, exposed to an intense information overload with digitalization, is becoming increasingly tired, overwhelmed by content saturation, and exhausted by the speed of changes it cannot assimilate. With this burnout, people are now avoiding socializing. The proportion of people who say they do not want to listen to and avoid the news has increased to 41% in the United Kingdom, 46% in Argentina, and 57% in Bulgaria and Greece. The excessive repetition of some news and the emotional impact they have on the mental health of society lead to this avoidance. The repercussions of the COVID-19 pandemic, images of war-related violence, social injustices, and the economic impact of such events on the increasingly deteriorating living standards of the population reinforce this trend of disconnection, which is further exacerbated by the feeling of loneliness and polarization. On the other hand, this decline in interest in news goes hand in hand with the increased use of social networks. For example, younger generations are becoming more interested in and trusting social media influencers than journalists. There is a period in which news is received mainly from social media. There is also increasing fragmentation in social networks. The shift of users to Instagram or TikTok also shows that entertainment is being prioritized over news content.5
REFUGEE PROBLEM
War and violence have pushed the number of forced displacements worldwide to a new high, estimated at 114 million by the end of September 2023, according to the UN High Commissioner for Refugees. The main reasons for these forced displacements are; It was the war in Ukraine and conflicts in Sudan, the Democratic Republic of Congo, and Myanmar, as well as the drought, floods, and insecurity ravaging Somalia and the long-running humanitarian crisis in Afghanistan. Added to this was the Israeli-Hamas conflict and the displacement of 1 million Palestinians from their homes at the end of the year.
In the first six months of 2023 alone, 1.6 million new individual asylum applications were made, the highest number ever recorded. Reignition of forgotten conflicts has increased levels of instability and violence.
Of course, all these adverse developments do not create a very optimistic picture for 2024. Despite this, with the Paris Olympics to be held in 2024, increasing space studies, and the men's t20 World Cricket Cup, humanity will come together with the hope of global unity, and ideological differences will be put aside, at least to some extent. We hope that we will experience a year full of peace and abundance, where the shared values of humanity are highlighted, not differences, with the unifying spirit of sports.
Footnotes:
1 https://unctad.org/podcast/precarious-passage-red-sea-ship-attacks-strain-supply-chains
2 https://english.ahram.org.eg/NewsContent/1/1235/518017/Egypt/Urban--Transport/Egypt%E2%80%99s-Suez-Canal-revenue-has-dropped--in--Sisi .aspx
3 https://www.economist.com/the-world-ahead/2023/11/06/tom-standages-ten-trends-to-watch-in-2024
4 https://www.weforum.org/agenda/2024/01/economic-outlook-2024-recession-inflation/
5https://www.cidob.org/en/publications/publication_series/notes_internacionals/299/the_world_in_2024_ten_issues_that_will_shape_the_international_agenda
