1. War in Ukraine
Uncertainty around the war and its consequences will remain very high, with significant regional and global political and economic impacts. Every significant escalation in the war will likely lead to additional developed-market sanctions on Russia, which will also affect sanctioning countries’ economies.
2. China-Western decoupling
Washington and Brussels will likely continue to impose new restrictive policies explicitly or implicitly targeted at China. And Beijing will likely continue to shift domestic and foreign policies to become less intertwined with Western value chains. The result is likely to be a steady erosion of economic connectivity.
3. Geopolitical swing states
Geopolitical tensions have created growing pressures on middle powers to align with a geopolitical bloc. But some will seek to maintain relations with multiple global powers and maximize diplomatic leverage. India, Brazil, Turkey and Saudi Arabia will be among the most influential geopolitical swing states.
4. Focus on economic self-sufficiency
Governments will seek to reduce their economies’ reliance on other countries, particularly strategic rivals. These policy incentives and restrictions will tend to be sector-specific with an emphasis on strategic industries. In some instances, they will include allies and partners with policies that promote nearshoring and friendshoring.
5. Hardening of technology blocs
Technology will continue to be a strategic area of geopolitical competition, with restrictive policies likely to expand through new trade and investment controls. Semiconductors will likely continue to be a key area of focus. These trends may further reinforce the emergence of fragmented and distinct technology blocs.
6. Energy security imperative
Governments are pursuing multiple, sometimes incompatible, energy security goals simultaneously: reliability of supply, affordability for households and businesses, and environmental sustainability. Policymakers are likely to diverge in their prioritization of these goals, leading to a more complex global energy landscape.
7. Multispeed ESG policies
Environmental, social and governance (ESG) policies are likely to focus on near-term challenges such as meeting emission reduction goals, heightened scrutiny of social issues and expanded nonfinancial corporate reporting. A pushback in some markets and geopolitical tensions globally will lead to multispeed progress on ESG issues.
8. Inflation-recession paradox
High inflation is likely to persist, even as central bank interest rate tightening could push economies into recession. This could lead to more changes in government, political instability and social unrest. Sovereign defaults and economic crises are likely in some emerging markets — which could also lead to political instability.
9. Food insecurity and instability
Food insecurity is likely to remain a major challenge, as governments will be challenged to stabilize prices amid elevated interest rates and high import costs. A lack of coordinated global action means food insecurity will likely continue to elevate the risk of political instability.
10. Latin America’s left-leaning governments
Most of Latin America’s largest economies will be governed by left-leaning presidents. These countries are key producers of agricultural commodities and green minerals, so their policy choices may affect global market dynamics. Government policies will also affect investment and supply chain opportunities in the region.