Risk management continues to be a high priority in Boardrooms. It’s to be expected given the ongoing challenges around inflation, supply chain disruption, skills and talent, rising debt levels and an extremely volatile, and fast-moving geopolitical landscape. The complexity of this is compounded tenfold for businesses with an international presence.
While there may be greater optimism when it comes to conversations about recovery and a return to growth, the reality is that shareholders are more demanding and there is a real focus among senior executives on performance and productivity.
Criticaleye spoke to a mix of leaders from its global Community to glean their thoughts on the economic outlook for the next 12 months.
This is what they had to say:
Simon MacAdam, Deputy Chief Global Economist, Capital Economics:
Global trade relationships face further deconstruction under a possible Trump Presidency
In terms of geopolitical impacts [on the global economy], I'm thinking of three different things: trade wars and tariffs; an underlying process of decoupling and de-risking supply chains; and the consequences of conflict in terms of commodity prices and costs along the supply chain.
The underlying story about decoupling and de-risking supply chains has been a slow-moving process thus far and it is not about across the board deglobalisation. There isn't a process of fully-fledged deglobalisation going on. Rather, there is a process of fracturing global supply chains designed to improve supply chain resilience in targeted areas related to security, critical minerals and high technology goods. Consequently, if you have a slow-moving process for targeted goods, this is something that businesses can adapt to over time, as they have been doing.
In terms of commodity prices, Europe paid the price after Russia's invasion of Ukraine in terms of propelling natural gas prices. Gas consumption fell by 25 percent in Europe and many parts of industry suffered, which helps to explain why Europe's economy underperformed against the US in 2022 and 2023, despite both economies experiencing large increases in interest rates. So, there has been a macro impact there.
The real risk that should be on our radar is Trump 2.0, because he is threatening to ratchet up tariffs to a far higher degree. He's talking about universal tariffs and clamping down on people attempting to get around trade restrictions via transshipment hubs in Southeast Asia. He's talking about beefing up the inspection of containers. He's talking about 60 percent - not 25 percent - tariffs on China. This ratcheting up could lead to a more abrupt form of fracturing.
Looking to the next couple of years, geopolitical risk is an order of magnitude higher than what we've seen in the previous few years.
Supply chain dislocation is rewriting the balance of power for organisations globally
One [of the primary risks for Boards] is the confluence of geopolitics and tech. If you imagine an organisation's supply chains, they're not only transporting physical goods, but also transmitting data and moving information. A lot of State actors are now brazen about sponsoring hackers and cyber attackers.
If you watch a lot of supply chain related stuff, you know that ships that used to come through the Suez Canal have now normalised going by other routes, such as around the Cape of Good Hope. As a result, Egypt is losing a lot of revenue … Things like that will change the balance of power, whether it is companies, countries or consumers.
On interest rates, I think the whole orthodoxy of interest rates being able to fix the supply side pressure that gave us the inflation we got is unhelpful. Inflation has allegedly come down from double to single digit. How many [interest rate] cuts have we seen [in the UK]? I think it challenges the faith we are supposed to have in institutions [being] able to solve unfamiliar problems using familiar tools.
There is a case for optimism if the economies that we are playing in grow. I think [investing in] energy infrastructure so that we can deliver on Net Zero would be a good growth opportunity in the UK.
Being able to deal with an uncertain environment with caution is a leadership skill that people do need to [learn]. Often, [it may be wiser not to do anything] … if you don't know what the impact will be …
A risk you don't understand is sometimes not worth taking.
Venkataramanan Anantharaman, Non-executive Chair, Ecom Express and Board Mentor, Criticaleye:
Global economic growth will be spearheaded by the Asia region, despite China’s struggles
The US [economy] will be driven more by Fed policy on interest rates and it appears that the softening will finally happen in the latter part of 2024. I had predicted a mild recession in the US in the second half [of the year]. Perhaps that was too strong a term, but a slowdown is likely and recent data points to this.
A Trump victory … will see noise on China, but the reality is that Chinese imports into the US are difficult to replace. There will be a push in the US and other Western countries for a ‘China Plus One’ policy, but I do not expect a dramatic fall in Chinese exports given their sheer scale and unit economics. Those areas that have a security implication will see more of an impact in China. A Democratic [Party] victory will see similar trends, albeit without the rhetoric.
From a growth perspective, India and countries in ASEAN like Vietnam and Indonesia will see growth. Saudi Arabia is seeing massive investment and transformation. If there is a ceasefire in relation to Russia-Ukraine, there will be a post-war boom in infrastructure spending. This is a positive to watch out for – China and Europe should be natural beneficiaries. The US will see a slowdown, but not a recession. Europe [will experience a] slow recovery.
The thing to watch is the growing disparity between the haves and have nots and which countries will be brave to impose a wealth tax on the super-rich. India needs jobs – a huge unemployed population is a social risk. So, the government will focus on sectors that create jobs.
Two worries remain: climate change, [with] the impact already severely seen worldwide; and the global fiscal deficit era. Watch out for the proverbial straw that will break the camel’s back. The latter is my biggest concern.
Robin Renee Sanders, CEO, FEEEDS and Board Mentor, Criticaleye:
Political and economic uncertainty prevails globally, especially in the US ahead of a pivotal election
One does not need a crystal ball to understand that the world – and pretty much every structure, order and assumption that many of us have lived by – is undergoing either a major challenge, movement/shift, or facing new measures or pressures. Thus, I am doubling down on my watchword for 2024 remaining as ‘unpredictability’.
We must keep an eye on new technologies and do more on climate change as the latter adds to risks and conflicts. On [Generative] AI, I can see what I call the ‘triple issues’ of Helping, Hurting or Exacerbating (HHE) that will need to better manage in the coming years. Yes, there are greater … benefits in communication, work, health and social uses that it offers, but top of mind for me are responsible regulations on privacy and concerns about identity and copyright misuses.
With this unpredictable theme as the backdrop, it sets the stage for Boards to keep an eye on the current global risks and being prepared for the unexpected, particularly disruption to personnel, business models and profits, trade ties, infrastructure and supply chains. It will be key to have several backup plans to address all of these issues.
Is there any good news? Am I optimistic? Well maybe … there is a chance for a bit more global economic recovery in a few countries, but again, continued and/or unexpected new conflicts or unexpected political events can change that at a moment's notice. In our unpredictable global landscape, I will seek to be optimistic where I can, but I do remain worried about our immediate global future.
Matthew Blagg, CEO, Criticaleye:
Stubborn core inflation data continues to put a strain on the global economy
The one thing you can pretty well guarantee is that you just don't know what's coming around the corner. At the moment, there is very mixed opinion in terms of economic data and where it goes, particularly with inflation. The implication of interest rates is still increasing, whether that's government debt or corporate bonds coming up, or mortgages on a global basis.
There’s still that pressure on the global economy. I think there's real concern because the fundamental rates of inflation are a bit sticky. And then you've got wage challenges because expectations and reality are not in the right place.
There’s also a global understanding of basic capital structures. If you have everything going up, I’m afraid there's only one way to go, which is to start cutting. So, I think for markets around the world, you've got this really difficult mixture of challenges.
In terms of the geopolitical environment, so much is going to hang on the election in the US and that's changing on a daily basis. President Joe Biden has now made his announcement so that obviously changes the scenario. But there's a massive amount at stake and that's true as well from an environmental perspective and economically, not just in the US but around the world.
The fact that the geopolitical landscape is moving around very fast means that people are fickle, which makes the business landscape difficult to read. That means there is a very small landing zone to be successful, and a large area where you can create real long-term problems, so the risk levels are extremely high, particularly in Europe.
Jacob Ambrose Willson, Senior Editor, Criticaleye
