Geopolitical Tensions and Their Economic Impact in 2024

Geopolitical Tensions and Their Economic Impact in 2024

As we advance into 2024, geopolitical tensions continue to pose significant threats to global economic stability. Conflicts in pivotal regions, particularly Eastern Europe and the Middle East, have exacerbated uncertainties in global markets. These regions are crucial for global supply chains, particularly for food and energy, which means disruptions could have widespread implications.

The World Bank’s latest report underscores that ongoing conflicts in these areas could severely impact global supply chains. For example, any escalation in the Middle East could lead to a dramatic rise in oil prices. The current baseline forecast of $81 per barrel could see a 30% increase if tensions worsen, potentially stoking global inflation and reducing economic growth by 0.2 percentage points. This is significant given the already projected slowdown in global growth to 2.4% in 2024 from 3% in 2023​ .

In addition to immediate economic impacts, these geopolitical tensions are driving a more fragmented global economy. The IMF notes that the pace of geoeconomic fragmentation is expected to accelerate in 2024, leading to long-term shifts in global trade and economic cooperation. This fragmentation is likely to widen the divide between the Global North and South, with low-income economies bearing the brunt of these disruptions. Increased trade restrictions could lead to a potential loss of up to 7% in global economic output, with low-income countries facing a potential reduction of up to 4% of GDP​ ​.

The impact of these tensions is not just economic but also geopolitical. As the global economy becomes more fragmented, the formation of geoeconomic blocs is expected to intensify. This will likely result in increased localization of industries and a divergence in economic policies between different regions. For instance, South and East Asia are expected to see continued buoyant activity, driven by moderate growth in China. However, Europe, the US, and the Middle East and North Africa regions are expected to face weaker economic conditions over the next 12 months​ ​.