An improving global outlook remains vulnerable to an array of geopolitical disruptions
It has been almost six months since the release of our 2024 Events to Watch, our annual report that highlights events that sit outside of our base case but have the potential to be highly disruptive to the global outlook and to multinationals. As we approach the halfway mark of 2024, we take stock below of how these events have progressed, whether or not they have materialized, and how their probabilities have changed.
So far, so good. While geopolitical tensions remain high, notably in the Middle East, conflicts have remained broadly contained and have had few global repercussions: commodity prices are stable, and while shipping lanes continue to be disrupted, the global impact of this has been minimal. On the electoral front, we have not seen any major surprises: in the US, the obstacles to Trump’s electoral chances have been mostly cleared, as we expected. In elections that have already happened, such as in Taiwan and Indonesia, the results have been in line with our base case. From a growth perspective, we have seen few major surprises.
Still, the potential for disruptions remains historically elevated: tensions between China and Taiwan are a perennial threat, and conflicts in Ukraine and the Middle East continue to carry a substantial possibility of escalating. From an economic perspective, tensions around China’s cheap exports threaten global trade relations, and higher-for-longer US interest rates carry their own set of global implications as well.
Multinationals should remain both alert and agile. This means paying close attention to developments that could affect their growth prospects and operations, as well as continuing to engage in proactive scenario planning to ensure maximum responsiveness should things go wrong (…or right).
China blockades Taiwan
- Probability: unchanged
- Our View: No major events have occurred that would make us either increase or decrease the probability of this event.
Biden exits the US presidential race
- Probability: unchanged
- Our View: No major events have occurred that would make us either increase or decrease the probability of this event.
Oil prices spike above US$ 130/bbl.
- Probability: increased from 10% to 15%
- Our View: Heightened tensions in the Middle East have led us to revise up our probability of oil prices spiking to US$ 130. However, we assess that the probability of the event occurring remains low: global oil markets are in better balance than they were in 2023, and while tensions have indeed escalated in the Middle East, the risk to physical oil infrastructure and transit routes (such as the Strait of Hormuz) remains low at the time of writing.
Chinese growth decelerates sharply
- Probability: unchanged
- Our View: Chinese growth improved slightly in the first quarter of 2024, buoyed by a pickup in manufacturing activity, itself a product of the state’s focus on keeping industrial production steady. Still, risks abound in China’s real estate sector, and we continue to assign a 10% probability to a sudden deterioration that would take Chinese growth down to 3.8% from our current forecast of 5.0%. See more here.
Italian fiscal underperformance sparks financial panic
- Probability: unchanged
- Our View: The adoption of new measures to address fiscal imbalances, involving laxer enforcement mechanisms and a significant increase in time to comply and submit fiscal correction plans, will alleviate financial concerns for both Italy and France. While the EC is still likely to trigger an excessive debt procedure, the impact on the markets will be much more limited, given the extensive timeframe for both governments to submit long-term plans to address said imbalances.
Trump is barred from the 2024 election
- Probability: reduced from 10% to 0%
- Our View: The US Supreme Court ruled against several challenges brought by states to bar him from appearing in Republican primaries, under Article 14 of the Constitution. Trump is therefore all but certain to appear as a candidate in the election.
MENA faces regional war
- Probability: new scenarios include a 35% downside scenario and a 10% critical downside scenario
- Our View: Recent events in the Middle East, most notably attacks between Iran and Israel, have led us to increase our probability of regional war in the region. Our downside scenario (35%) sees a low-intensity, small-scale conflict between both countries (predominantly on military targets), which would nevertheless lead to substantial uncertainty and disruption when it comes to trade, FX, investment, tourism, and consumption in MENA. Our critical downside scenario (10%) envisages a situation in which attacks between Israel and Iran escalate substantially, triggering a regional war forcing US intervention and destabilizing the region for a lengthy period. See more here.
Europe dials back green agenda
- Probability: unchanged
- Our View: No major events have occurred that would make us either increase or decrease the probability of this event.
The US enters a recession
- Probability: reduced from 20% to 5%
- Our View: Macroeconomic data from the US has so far proven resilient. Q1 GDP data showed a slight slowdown, but this was in line with our expectation, and overall demand remains robust. Still, the risk of a recession remains: the Fed is set to keep rates elevated for most of 2024, increasing the risk of something “breaking” (e.g., financial instability, commercial real estate woes, or a sudden deterioration in labor market conditions)
US support for Ukraine crumbles, forcing a settlement
- Probability: reduced from 20% to 5%
- Our View: The US House of Representatives, led by Speaker Mike Johnson, managed to pass a US$ 61 billion aid package destined toward Ukraine, despite threats from fellow Republicans. We expect the aid package to be enough to avoid any major Russian breakthroughs in 2024, and therefore have reduced our likelihood of a settlement. Peace talks with substantive outcomes still remain elusive until after the US elections.
An inconclusive US election leads to political violence
- Probability: unchanged
- Our View: No major events have occurred that would make us either increase or decrease the probability of this event.
Extreme weather dramatically worsens food insecurity
- Probability: unchanged
- Our View: while extreme weather events have led to poor yields and food insecurity (notably for commodities such as cocoa and rice), this has not been on the scale envisaged in the event we described in the report. At the aggregate level, global food prices continue to fall, and are at their lowest in three years.
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