Abu Dhabi

Source: Mufakiru Alemarat

Dr. Ali Mohamed Al Khouri

As we approach the end of 2023 and the beginning of a new year, the global economic landscape presents a panoramic picture with diverse and somewhat chaotic trends, requiring a careful look beyond short-term events to understand broader trends. On the one hand, we find a trend indicating that the countries of the major economies will witness an economic recovery manifested in growing consumer spending, strong activity in the services sector, and continued decline in unemployment rates. On the other hand, we find trends indicating an increasing pace of challenges in these countries themselves, and their extension to emerging and developing economies, which will find themselves besieged by geopolitical tensions, and will be forced to accept the reality of trade contraction and inflationary pressures. This demonstrates the complex task that awaits policymakers and business sectors amid a volatile geopolitical map and doubts about the ability of central banks to manage economic transformations.

According to the International Monetary Fund, the global economy is expected to slow to 2.9 percent in 2024, after recording 3.0 percent this year (2023), and 3.5 percent in 2022. This downward trend indicates the changing economic landscape, and the increasing disparities between global economies between… A group that will see a slowdown in growth due to the cumulative effect of high interest rates and inflationary pressures; Others, on the other hand, may witness stable levels of growth, driven by the acceleration of local activities and the recovery of their markets. The truth is that whether this is sustainable or not is linked to the extent of countries’ ability to overcome the social and market turmoil resulting from the growing population and their basic needs, in light of the sharp and continuous rises in the prices of food, fuel and commodities.

As for the Middle East and North Africa region; It will also be on the verge of a slowdown in its economic activity, in light of expectations of a decline in real GDP growth to about 3.5 percent in 2023 and 2024, and a decline in average annual consumer price index growth to 4.0 percent in 2024, compared to 7.1 percent in the year. Current (2023), and 10.5 percent in 2022.

Inflation rates are likely to remain a major global concern; Expectations indicate a gradual decline in global inflation rates, reaching 5.8 percent in 2024, down from 6.9 percent this year (2023), and 8.7 percent in 2022. Although governments are counting on tight monetary policies to reduce prices International Commodity; Reports indicate that high interest rates represent sources of inflationary pressures, and rule out a return to targeted inflation rates until 2025 in most cases. Which requires a long period of economic adjustment. It is expected that rising interest rates, a weak exchange rate of national currencies, and a slowdown in the growth of the value of exports will lead to a further deterioration in currency exchange rates and more inflation in many developing countries. It is also expected that all of this will turn the increasing burden of debt service into obstructing development efforts, as confirmed by the latest report of the United Nations Conference on Trade and Development (UNCTAD) in 2023.

The UNCTAD report also indicates expectations that global trade results this year will result in a contraction of 5 percent, or about $1.5 trillion. Which makes the value of global trade less than $31 trillion. Prospects for 2024 remain uncertain and generally pessimistic; Due to geopolitical factors, mounting debt, and economic fragility.

On another level, we find that geopolitical rifts and the high cost of energy have become among the axes that increase the degree of complexity of the economic scene. The dynamics of oil policy have become intertwined with various foreign policy objectives. This makes energy prices more vulnerable to geopolitical shifts. This situation has led to less flexible positions from the OPEC Plus group of countries and the United States of America regarding rising energy prices. The relationship between the US dollar and oil prices, and attempts to undermine its dominance in international trade transactions, have had major impacts on global oil supplies and prices, and on importers and exporters alike. Ongoing geopolitical frictions—particularly between the United States and China, the war in Ukraine, and other emerging and potential conflicts, such as tensions surrounding Taiwan—could represent a disruptive concern for the global economy. We should not forget the timelines for global elections in 2024, including the elections in the United States, which may determine the severity of the geopolitical turmoil.

It is worth noting the new term announced by the United States, in 2022, called “Friend-Shoring” as an approach to redirect supply and production chains to countries that are classified as geopolitical allies, and reduce dependence on countries that are not classified as such. Which contributes to the complexity of the global trade scene. Concerns here are not limited to rising consumer prices due to moving away from countries with low production costs, or decreased corporate efficiency due to reliance on costly industrial policies, such as subsidies and tax breaks. Rather, it includes the obvious negative harms to international trade, especially the impact on “non-aligned” developing countries, which may prefer broad trade and may be excluded from the circle of “friends.” Which means losing commercial and economic opportunities, in other words. Indeed, World Trade Organization estimates indicate that global production may decline by 5 percent if support from friends leads to a division between the Eastern and Western trading blocs, with higher possibilities of economic contraction and exacerbation of international tensions.

In this interconnected and complex global economic environment, policymakers face the daunting task of how to guide their economies towards stability and sustainable growth. There may be no quick solutions to overcome these challenges; However, there remain a number of factors that must be taken into account at the national level, including finding a balance between monetary policies and the desired goal of managing inflation. With the aim of reducing the risks of recession, curbing the continuous and sudden rises in prices and costs of living, and enhancing confidence in local markets. In parallel, financial strategies must be re-evaluated, priority must be given to spending that stimulates growth, such as investments in infrastructure and human capital, and attention must be paid to hotspots that may exacerbate inflationary trends. It is important that economic policies address the axis of comprehensive development and provide general benefit to all segments of society. This requires addressing income inequality, providing equal opportunities, and building social safety nets.

On the other hand, it has become self-evident that trade relations and investment-encouraging partnerships are pivotal tools in confronting changing trade dynamics and geopolitical tensions, which calls for the attention of policy makers to diversify trading partners and conclude multilateral trade agreements in supply chain sources. In order to reduce trade barriers and overcome global trade fluctuations. As is always the case, the time factor is more decisive in establishing partnerships, and qualifying the structures of relationships and alternative trade networks that the world seems forced to rebuild given the current uncertainty in light of the continuing geopolitical complexities. Therefore, policy makers must realize that the speed of achievement will have a decisive role in alleviating the economic burdens that their countries will face, and that traditional bureaucracy and traditional administrative structures may be among the factors hindering this movement and its speed.

Without a doubt, systematic investment in digital infrastructure and sustainable technologies is among the pivotal means of opening new horizons for economic activity, efficiency and innovation. The major challenges faced by the industrial and manufacturing sectors in supply chains increase the strategic importance of localizing manufacturing within the country, especially as it provides more flexible supply chains and creates new job opportunities at the local level. In the same context, as the dynamics of labor markets change, it is necessary to design policies that support skills development, re-education and training of the workforce with the aim of adapting to the evolving employment landscape, and ensuring a smooth transition to emerging sectors.

The urgent need to integrate sustainability into economic policies cannot be overemphasized. The global shift towards addressing climate change provides opportunities for innovation and the creation of jobs in new sectors. Investing in green technology can no longer be considered a side topic or an option; Rather, it should be viewed as something that isolates backward people from their surroundings. There will remain an urgent need to align national economic policies with sustainable practices, encourage investments in green energy, sustainable agriculture, and support environmentally friendly industries.

The continued growth of the global services sector demonstrates the increasing volume of consumer demand and pushes towards digital transformation. This confirms the need for national policies to support the growth and empowerment of this sector, by directing investments towards developing the digital infrastructure for services, health care and education. The trade and logistics sector can benefit from these investments as well, especially in improving infrastructure, introducing digital technologies to mitigate future disruptions in supply chains, and ensuring trade flows of goods and commodities via feasible alternatives.

Between the challenges and opportunities, it seems that the year 2024 will be full of events that require multifaceted national policies and measures, consistent with global changes, to overcome the uncertainties that continue to isolate national economies from global markets due to financial pressures. Countries that plan to overcome these challenges – with a mindset and insight based on innovation and strategic speed – will seek to build national environments that support sustainable growth, and create equitable development and flexible economies, which is a path that will facilitate seizing opportunities and open horizons for new future development models.