The study further cites other risks, including China’s decelerating economy and the rapid development of artificial intelligence (AI).
Led by Associate Professor Dr. Vu Thanh Huong, Vice Dean of the Faculty of International Economics and Business, the UEB research team placed geopolitical tensions and elections at the top of the list of risks to the global economy in 2024. This risk category includes the risk of escalating and spreading conflicts in the Middle East, the prolonged Russia-Ukraine war, intense competition between the US and China, and the super election cycle.
The study notes that the Israel-Hamas war in the Gaza Strip, Houthi rebel attacks on cargo ships passing through the Red Sea, and ongoing fighting between Russia and Ukraine have had adverse effects on the global economy. In particular, it has led to disruptions in energy supply, pushing up energy prices and leading to higher logistic costs.
Brent crude oil futures traded in London, the benchmark for the global oil market, have risen from below $76 per barrel at the beginning of this year to over $90 per barrel today, an increase of more than 18%.
“This has led to a rise in the cost of goods and, subsequently, global inflationary pressure,” said Ms. Huong.
Moreover, the conflicts have also disrupted supply chains and trade activities, creating barriers to economic growth as the global economy slowly recovers from the Covid-19 pandemic.
The US-China rivalry is another geopolitical risk to the global economy this year. The UEB research team refers to the Chinese National People’s Congress in March this year and the US presidential election scheduled for November 2024. Ms. Huong states that the policies announced by Beijing at the NPC, as well as the positions of the two US presidential candidates from the Democratic and Republican parties, indicate that the competition between the world’s two largest economies will continue to be intense.
The research team believes that the global economy this year will be dominated by the super election cycle, with 76 countries holding elections and approximately 50% of the world’s population eligible to vote.
The second risk identified by the UEB researchers in their study titled “Global Economy Q1/2024: Risks, Uncertainties, and Fragmentation” is the slowdown of the Chinese economy. The team of experts believes that the slowdown in China’s economy is long-term. According to forecasts from international organizations cited in the study, the average annual growth rate of China’s economy will decline from its peak of over 10% in the 1990s and 2000s to 4.4% in the 2020s, 3% in the 2030s, and 2% in the 2040s.
“Economies dependent on China’s supply chains and markets could face declining demand in sectors ranging from chemicals to electronics and machinery. Companies and countries may need to rethink their business and supply chain strategies,” the research team writes.
The third risk is the instability of global financial markets. The research team notes that escalating political conflicts are pushing up prices of goods, services, and energy, creating obstacles to fighting inflation in major economies such as the US and Europe. This is forcing central banks to postpone interest rate cuts. Recently, there have even been predictions that the Fed might not cut interest rates in 2024.
These fluctuations have led to divergent monetary policy trends among major economies such as the US, Europe, China, and Japan, making the uncertainty in global financial markets even greater.
Also contributing to the global financial instability risk is the world’s record debt. Global debt, both in absolute and relative terms, reached new highs in 2023. Of which, total global debt reached $313 trillion and the debt-to-global GDP ratio reached 330%. The rapid increase in debt is “a development that runs counter to the monetary tightening in most major economies,” according to the research team.
The fourth risk reported by the UEB authors is technology risk. The report states that in the context of the rapid rise of AI, a major risk is that management policies will not keep pace with the development of AI. “Misinformation produced by AI, especially in a year with many elections around the world like this year, has been included in the top 10 new risks of 2024,” Ms. Huong emphasized.
The fifth risk is climate risk, with the return of the El Niño phenomenon increasing the risk of natural disasters. Climate change poses a major risk to food and water security, potentially leading to food and water insecurity, which could lead to political and social instability.
The sixth risk for the global economy this year according to the UEB study is fragmentation worldwide, including fragmentation between countries, trade and trade policy fragmentation, and investment policy fragmentation. All of these lead to increased transaction costs, reduced market access, higher prices for consumers, reduced growth potential, particularly negative effects on countries that are heavily dependent on trade, and diminished effectiveness of free trade agreements (FTAs).
“All of these risks are not new, but are becoming increasingly prominent in the global economy,” said Ms. Huong when presenting the research at the dialogue “Identifying the Economy in Q1/2024, ‘Paving the Way’ for the Economy for the Whole Year.” The dialogue was organized by Vietnam Economic Times – VnEconomy in collaboration with UEB.
Participating in the discussion at the dialogue, Dr. Can Van Luc, member of the National Monetary and Financial Policy Advisory Council, agreed with the assessment of global economic risks made by the UEB authors this year. He also emphasized that inflation and interest rates, although decreasing, are still high and pose a particularly significant risk to the global economy.
“From a peak of nearly 9% in 2022, global inflation will fall to below 4% by the end of this year and 3.2% by the end of 2025,” said Mr. Luc. According to the expert, the risk of inflation rebounding is forcing central banks to postpone interest rate cuts; for example, the Fed may not start cutting rates until September.
“The global economy this year is likely to remain flat or slightly decline compared to last year. However, one positive thing is that the resilience of economies today is better than before. The US and European economies should have gone into recession but ultimately did not,” said Mr. Luc.
