February 23, 2024

Brighton Journal

Complete News World

The cessation of shipping in the Red Sea is the latest risk threatening the global economy

The cessation of shipping in the Red Sea is the latest risk threatening the global economy

Attacks by a group of militants in Yemen on vital shipping traffic in the Red Sea Strait – an extension of the war between Israel and Hamas in Gaza – are injecting a new dose of instability into a global economy already suffering from mounting geopolitical tensions.

The risk of escalating conflict in the Middle East is the latest in a series of unpredictable crises, including the COVID-19 pandemic and the war in Ukraine, that have landed like bear paw blows on the global economy, derailing it and exacerbating the crisis. . Leave scars.

As if that wasn't enough, there is more volatility to come in the form of A National election wave The repercussions can be deep and long. More than two billion people will go to the polls in about 50 countries, including India, Indonesia, Mexico, South Africa, the United States and the 27 member states of the European Parliament. In total, participants in the 2024 Election Olympics represent 60 percent of global economic output.

In strong democracies, elections are held with growing distrust of government, voters are deeply divided, and there is deep and persistent anxiety about economic prospects.

Even in countries where elections are neither free nor fair, leaders are sensitive to the health of the economy. The decision taken by President Vladimir Putin this fall to require exporters to convert foreign currencies into rubles may have been implemented by a decision of Russian President Vladimir Putin. Eye on support The ruble and price cuts in the run-up to the Russian presidential election in March.

Winners will determine critical policy decisions affecting factory subsidies, tax breaks, technology transfer, artificial intelligence development, regulatory controls, trade barriers, investments, debt relief, and the energy transition.

A series of electoral victories that bring angry populists to power could push governments toward tighter controls on trade, foreign investment, and immigration. Such policies, he said Diane CoyleA professor of public policy at the University of Cambridge could turn the global economy into “a very different world to the one we are used to”.

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In many places, skepticism about globalization has been fueled by stagnant incomes, declining living standards, and rising inequality. However, Ms Coyle said: “A world in which trade is shrinking is a world in which income is shrinking.”

She warned that this raised the possibility of a “vicious cycle”, as the election of right-wing nationalists would likely further weaken global growth and damage economic fortunes.

Many economists have compared recent economic events to those of the 1970s, but the decade that Ms. Coyle said comes to mind was the 1930s, when political turmoil and financial imbalances led “to populism, declining trade and then radical politics.”

Next year's biggest election will be held in India. It is currently the fastest growing economy in the world, and is vying to compete with China as the world's manufacturing center. Taiwan's presidential election in January will likely escalate tensions between the United States and China. In Mexico, the vote will affect the government's approach to energy and foreign investment. Indonesia's new president could change policies regarding important metals such as nickel.

There is no doubt that the US presidential elections will be the most important ever for the global economy. Approaching competition already influences the decision-making process. Last week, Washington and Brussels agreed to this Suspension of tariffs On European steel and aluminum and on American whiskey and motorcycles until after the election.

The deal allows President Biden to appear to be taking a tough stance on trade deals while fighting for votes. Former President Donald J. Trump, the likely Republican nominee, has defended protectionist trade policies and proposed sanctions 10 percent tariff on all goods coming into the United States — a combative move that would inevitably prompt other countries to retaliate.

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Trump, echoing authoritarian leaders, also signaled that he would back away from America's partnership with Europe, withdraw his support for Ukraine and take a more confrontational stance toward China.

“The election results could lead to far-reaching shifts in domestic and foreign policy issues, including climate change and global regulations and alliances,” consulting firm EY-Parthenon concluded in a recent report.

The global economic outlook for next year is so far mixed. Growth remains slow in most parts of the world, and dozens of developing countries are at risk of defaulting on their sovereign debt. On the positive side of the ledger, the rapid decline in inflation is prompting central bankers to cut interest rates or at least stop them from rising. Lower borrowing costs are generally an incentive to invest and buy homes.

As the world continues to fracture into unstable alliances and competing blocs, security concerns are likely to loom larger over economic decisions than they have to date.

China, India and Turkey intensified their purchases of Russian oil, gas and coal after Europe sharply reduced their purchases in the wake of Moscow's invasion of Ukraine. Meanwhile, tensions between China and the United States have prompted Washington to respond to years of strong industrial support from Beijing by offering massive incentives for electric cars, semiconductors and other items deemed essential to national security.

Drone and missile attacks in the Red Sea by the Iran-backed Houthi militia are another sign of growing fragmentation.

He said that in the past two months, there has been a rise in the number of smaller players such as Yemen, Hamas, Azerbaijan and Venezuela seeking to change the status quo. Courtney Rickert McCaffreya geopolitical analyst at EY-Parthenon and author of the latest report.

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“Even if these conflicts are smaller, they can still impact global supply chains in unexpected ways,” she said. “Geopolitical power is becoming more dispersed,” and this increases volatility.

Houthi attacks on ships from around the world in the Bab al-Mandab Strait – aptly called the “Gate of Sorrow” – at the southern end of the Red Sea have sent shipping, insurance and oil prices soaring while significantly diverting maritime traffic. A longer and more expensive route around Africa.

The United States said last week that it would expand its military alliance to ensure the safety of ships passing through this trade route 12% of global trade Pass, pass, pass. It is the largest redirection of global trade since Russia's invasion of Ukraine in February 2022.

Klaus WestesenThe chief euro zone economist at Pantheon Macroeconomics said the impact of the attacks had been limited so far. “From an economic perspective, we are not seeing a significant increase in oil and gas prices,” Mr. Vestesen said, although he acknowledged that the Red Sea attacks were “the most obvious flashpoint in the near term.”

However, uncertainty has a dampening effect on the economy. Companies tend to adopt a wait-and-see attitude when it comes to investment, expansions and hiring.

“The ongoing fluctuations in geopolitical and geoeconomic relations between major economies are the greatest concern for chief risk officers in both the public and private sectors.” reconnaissance By the World Economic Forum.

With continuing military conflicts, increasing bouts of extreme weather, and a slew of major elections coming up, 2024 is likely to bring more of the same.