The year 2023 was marked by a series of socio-economic and environmental events that had impactful repercussions on the global economy. At the start of 2023, I can highlight the earthquakes in south-west Turkey and part of Syria, the banking crisis in the United States in the first quarter, the increase in the Compulsory Reserve coefficients in Mozambique and, finally, the outbreak of a new geopolitical crisis in the Middle East between Israel and Hamas – adding to the armed conflict between Russia and Ukraine, which showed no signs of abating throughout the year.
As we enter the new year, one question arises in investors’ minds: what are the main risk scenarios with the potential to create constraints on the global economy? Analysts point to several categories, the most relevant of which are geopolitical, economic and environmental, among others. In this article, we will focus on these three, due to the severity of their short-term impacts.
On the geopolitical front, there is the possibility of escalating tension between China and Taiwan, which could create fractures in the weak relationship between China and the United States. The risk of these relations worsening is significant and could have devastating implications for both Taiwan’s economy and the global economy, given the dependence of the main production chains on the semiconductor industry, which is highly centralised in Taiwan’s economy. Any disruption to the production capacity of these elements will drastically affect global supply chains.
Other risks that could be disturbing on a geopolitical level are the current armed conflicts between Russia-Ukraine and Israel-Hamas. The worsening of either of these conflicts could have global repercussions and lead to a breakdown in the weak relations between Western countries and Russia. Moscow’s closer relations with Beijing could cool relations between the world’s two main economic blocs (the US and China), with greater emphasis if Donald Trump is re-elected US President.
It is expected that in 2024 we will continue to experience significant climate changes that will have an impact on the global economy. Models indicate an increase in the frequency of extreme meteorological phenomena
The recent Israel-Hamas conflict could also be a major source of risk. In addition to Gaza, the continued threat (to the north of Israel) from Hezbollah’s armed arm, supported by Iran, could motivate a warlike response from Israel and the consequent spread of the conflict to a regional level, with significant implications for oil production, transport and logistics in the Middle East. This situation would have a significant impact on international oil prices, fuelling inflation that has not been reduced to pre-pandemic levels.
On the economic front, we can emphasise the fight that central banks have been waging against high inflation, which has led to one of the biggest tightening of monetary policies in recent decades. At a time when inflation is slowing down everywhere, the markets are beginning to predict that these measures will be relaxed: we should see the first cuts in benchmark interest rates in the first half of the year. With the resilience that the global economy has shown to rate rises, there is a possibility that in 2024 we could experience a re-acceleration in both economic growth and inflation, forcing central banks to maintain restrictive policies with an impact on the global economy.
Finally, on the environmental front, it is expected that in 2024 we will continue to experience significant and unexpected climate change, which will have an impact on the global economy. Models indicate an increase in the frequency of extreme meteorological phenomena in 2024, which could lead to severe droughts, heatwaves and impacts on production, overloading global supply chains and contributing to inflationary pressures. The cost of combating these phenomena will also increase and will be a significant counterweight to the normal development of economies, with a greater impact on those that are more fragile and less prepared.
These risks, if they materialise, represent a significant threat to the global economy, with particularly serious implications for the importing economies of sub-Saharan Africa and Mozambique, given their political-fiscal and economic-financial dependencies on the countries involved in the events mentioned. In addition, Mozambique faces environmental risks independent of other geographies, with cyclones and floods causing significant impacts on the country’s public finances – as has been the case in recent years.
There are many risks for 2024, but the outlook is also very good, especially for Mozambique, which could finally see the resumption of the onshore gas project led by TotalEnergies and the continuation of the structural reforms that contributed to the economy’s growth in 2023 at a rate not seen since 2015.
