Understanding the Impact of Geopolitics on Global Economic Performance in 2024
The interconnectedness of geopolitics and the global economy is becoming increasingly evident in 2024, with conflicts in Ukraine, the Middle East, and the Red Sea region impacting economic performance worldwide. Elections in over 64 countries are also set to influence trade and investment policies, adding to the uncertainty and political polarization.
Geopolitical events can directly and indirectly affect financial markets, trade flows, and commodity prices, leading to higher inflation, lower growth, and welfare losses. Populist governments implementing short-term policies may disrupt global trade flows and hinder long-term growth, as seen in a recent study covering 60 countries.
Measuring geopolitical risks through indices like the Geopolitical Risk Index (GPR) helps track the intensity of adverse events and their impacts on oil prices, investment, inflation, and trade. However, the GPR has limitations in predicting future risks and capturing the complexity and sources of risks, requiring additional qualitative analysis and scenario planning.
Major risks facing the global economy in 2024 include existing conflicts and tensions, unregulated AI tools, increased protectionism, and macroeconomic vulnerabilities. Elections worldwide, particularly in the US, could have significant economic implications, with potential changes in fiscal policies, trade relations, and global power dynamics.
While the impact of geopolitical risks may not be as severe as anticipated, incremental reforms to the macroeconomic framework are necessary to address global challenges effectively. Strengthening central bank mandates, fiscal rules, international institutions, and consensus-building processes can help mitigate the impact of geopolitical risks on the global economy.
For more information on this topic and insights from experts, visit the National Institute of Economic and Social Research (NIESR) and stay informed on the evolving dynamics of geopolitics and economic impacts in 2024.