Geoeconomics Bi-Weekly: World Bank Predicts Economic Slowdown for Third Straight Year

Happy New Year everyone! Welcome to 2024, a year which promises to see geoeconomics continue to rise to the fore. Seven of the ten most populous countries in the world will head to the polls this year, while new geopolitical relationships take shape and industrial policy initiatives take effect. And we will be here, providing you with updates and insights into the breaking developments around the world. 

On to this week’s update!  

Macroeconomic Update 

As this is our first newsletter of the year, let’s begin with a forecast. On Tuesday, the World Bank released its annual economic forecast for 2024, predicting that the global economy will slow for the third straight year amid “tight monetary policy, restrictive financial conditions, and feeble global trade and investment.”  

But prospects differ across regions. The World Bank forecasts U.S. real GDP growth to slow from 2.5% in 2023 to 1.6% in 2024 and China’s to slow from 5.2% to 4.5%. The Eurozone, however, is expected to see real GDP growth increase from 0.4% to 0.7% over the same period. Meanwhile, many emerging markets and developing economies in fragile conditions are projected to continue experiencing lackluster growth, primarily due to high debt levels and borrowing costs.  

The report also highlights further risks to the global economy, which include fluctuations in commodity prices due to geopolitical tensions, high interest rates, trade fragmentation, and climate disasters.  

Stories of the Week 

Container shipping prices spike as Houthi attacks in the Red Sea persist: Container shipping prices jumped 60 percent the first week of the year, as the Yemen-based Houthis have carried out at least 26 attacks on commercial vessels in the Red Sea since mid-November. The Suez Canal at the north end of the Red Sea carries 30 percent of the world’s container shipping, which is the primary means for transporting consumer goods around the world. Some shipping companies are now electing to avoid the region and instead sail around the Horn of Africa, which can add up to two weeks of travel time. Yet while container shipping prices have jumped, energy prices remain relatively steady as several oil companies continue to ship through the Red Sea and large global energy stores cushion the fallout. The United States is leading a coalition to protect commercial shipping through the region and have carried out strikes on Houthi militants alongside the United Kingdom. 

U.S. and EU inch closer to seizing blocked Russian assets as aid for Ukraine stalls in Washington: While U.S. leaders remain stuck on issuing further aid, another potential source of financial support for Ukraine is gaining attention: frozen Russian assets. Following Russia’s full-scale invasion of Ukraine Western governments froze roughly $300 billion of Russia’s overseas assets, which some are now advocating should be used to finance Ukraine’s rebuild. The White House recently backed a bill that would direct some of the frozen assets to Ukraine’s reconstruction, and representatives of EU member states met this week to discuss supporting Ukraine’s rebuild with the profits generated by the assets frozen in the EU. However, political disagreements persist as policymakers gauge the political, financial, and legal consequences of such a move. Some argue that seizing Russia’s frozen assets may backfire by setting a troubling precedent for U.S. adversaries, destabilizing financial systems, and undermining the credibility of Western financial institutions and assets.   

U.S. company Astrobotic launches first moon landing mission in 50 years as commercial space economy booms: While space exploration has always been tied to national prestige and defense, today it is also tied to economics. Estimated to be worth over $550 billion in 2023 and with significant room for growth, more nations are competing in the space industry than ever before. There were 223 orbital launch attempts from more than 10 different countries in 2023, the most ever in a single year. The growth of the space industry was highlighted on Monday by U.S. space robotics firm Astrobotic, which launched an unmanned mission to the surface of the moon. If successful, Astrobotic’s landing would mark the United States’ first landing on the moon in over 50 years, and a major step towards a planned crewed mission to the moon in 2025. The mission is part of the NASA-led Artemis program. 

SEC approves spot bitcoin ETFs, bringing the cryptocurrency further into the mainstream: After a false start on Tuesday, the U.S. Securities and Exchange commission approved the first spot bitcoin exchange traded funds (ETFs) on Wednesday, in what may be a watershed moment for the world’s most valuable cryptocurrency. An ETF is a pooled investment similar to a mutual fund, which allows investors to gain direct exposure to the underlying asset without holding it. The legitimization of bitcoin ETFs may bring cryptocurrency further into the mainstream, potentially pumping significant amounts of money into bitcoin by making it easier to invest in. The SEC’s decision comes as cryptocurrencies face criticism for terrorist financing. Hamas may have utilized cryptocurrencies to receive donations and millions in funding from Iran, prompting over 100 U.S. lawmakers to demand the Biden Administration address crypto financing of terrorism.  

U.S. labor market remains resilient: The U.S. labor market once again displayed signs of resiliency despite tight monetary policy and sustained inflation. 2023 closed off with a 3.7% unemployment rate, slightly below the highest value recorded during the year (3.9% in October). And the number of layoffs further highlights the strength of the U.S. labor market: jobless claims adjusted for weekly volatility nearly hit a three-month low during the week ending on January 6. The strength of labor market, as well inflation’s downward trajectory, is raising confidence about the possibility of a “soft landing” (i.e., taming inflation without causing recession) for the U.S. economy.  

What we’re watching  

• January 13 – Citizens of Taiwan head to the polls to elect a new president, as incumbent Tsai Ing-Wen is serving in her second and final term. The current front-runner is Tsai’s vice-president, Lai Ching-te, who’s policy towards China is to maintain the status quo and not declare independence. Still, China has framed the election as “a choice between war and peace.” The status of Taiwan, which produces 90% of the world’s most advanced semiconductors, remains one of the biggest flashpoints in U.S.-China relations. 

• January 19 – U.S. government funding for the Departments of Transportation, Housing and Urban Development, Energy, and Veterans Affairs expires following a stop-gap funding bill signed in November.  While congressional leaders agreed on overall spending levels last weekend, they are now exploring at temporary funding solutions as the appropriations process may not be complete by the 19th. Other government agencies are currently funded through February 2. 

• January 30 – The U.S. Federal Open Market Committee meets to decide on interest rates. While the Fed indicated it could lower interest rates as many as three times this year, analysts are split as to when.