Global Economy in a Pinch Between Elections and Various Wars

Will there be gas and what will its price be if the war in Ukraine continues? Will there be any at all? What will oil prices be? And if military operations in the Middle East continue? Where to find suppliers if those from China are unable to deliver certain materials on time and at the agreed price? What if that delivery is not a business problem, but retaliation for European sanctions?

What if the war in Gaza continues and there are no herbicides from Israel next year, where to find a new supplier? There is a recession in Germany, cuts are already being made in the Croatian wood industry, who is next in line? How to deal with illegal migrants breaking into the trailers of our freight vehicles? What will the tourist season be like if the rattling of weapons in the Balkans does not remain just rattling? What will the super election year bring us? Only in Croatia, three electoral processes are taking place, while around the world there will be about a hundred in 2024…

Eyes Must Stay Open

All these questions we faced and dealt with this year will remain crucial next year as well. Geopolitics has always shaped business, rarely the other way around, and today it seems to dictate it so much that managing the crises generated by geopolitics has become conditio sine qua non. On the other hand, geo-economics is strengthening as a concept that denotes the influence of economic factors on geopolitical processes, resource management, and the use of economic instruments to achieve geopolitical goals. In such circumstances, assessments of geopolitical risk have never been so critical for business, and quality management of these risks is essential in the context of competitiveness, so eyes must stay open.

Experts of various profiles agree on one thing: the next year will not be much better than this one; it can only be tenser and worse. Russian aggression against Ukraine will gain a new context next year. In the West, there is noticeable fatigue with Ukraine, a reluctance for long-term support is felt, and unless some significant changes occur on the battlefield or in diplomacy beforehand, the outcome of the war in Ukraine will depend on the outcome of elections, especially those for the American president.

The attack by Hamas and Israel’s military operation, as well as relations between Israel and other countries in the Middle East, will dominate in 2024, especially if the conflict escalates and Iran and other Arab countries get involved. Economically speaking, trade wars, which will continue to be led by China and the USA, consequently the European Union, which is adjusting its foreign policy to align with the American one, will shape business across all sectors. This will, of course, affect business opportunities in Europe, including Croatia, as cheap technology is still predominantly produced by China. There may be less Chinese technology in Europe, their electric cars may become more expensive, China may not export crucial materials to us, but at least for now, there is no need to fear changes in the world order. Russia and China will not – yet – replace the unipolar power of the USA.

Possible New Hotspots of Instability

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Jasna Plevnik

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Since tensions in international relations are caused by the very structure of international relations, namely the constant competition among great powers, it is clear that old geopolitical crises will dominate next year as well, says the president of the Geo-Economic Forum Croatia Jasna Plevnik. The geopolitical conflict over territory between Israel and Hamas will continue, and given the current Israeli government’s goals to completely eradicate Hamas and the refusal of a two-state solution, it is possible that this war could escalate into a regional one involving Hezbollah, Iran, and Egypt directly. On the other hand, Plevnik believes that Russia’s war for Ukrainian territory will not escalate into a third world war, but next year will not bring a just peace either. However, she says, in 2024, new hotspots of instability are also possible, but nothing that will threaten the position of the USA.

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– Regardless of all the changes in international relations, for now, I do not see any state or group of states that can strategically challenge America. Moreover, the USA has made political decisions and laws that slow down economic globalization and will transform global supply chains, ultimately affecting the European direction of energy supply, which harms not only China and Russia but primarily American and European businesses. America is also quickly restructuring in the global supply chain, large companies from the USA are relocating their production capacities from China, increasing their investments in India and Vietnam. China is under pressure to lose some importance in American and global supply chains that have been built for decades, emphasizes Plevnik.

Strengthening the Right in Europe

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Davor Vlajčić

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Davor Vlajčić, an associate professor at the Department of International Economics at the Faculty of Economics in Zagreb, says that next year, due to tensions between China and the USA and concerns about future developments in the Chinese economy, he expects slight deviations in Chinese dominance in global value chains. However, he notes that with the expansion of BRICS and strengthening relations with BRI countries, these negative trends could be mitigated.

– Uncertainty about China’s future could mean a decrease in interest in its potential investments in energy and infrastructure projects for Croatia.

Additionally, energy price instability next year will cause uncertainty regarding the resolution of the conflict between Ukraine and Russia and Israel and Palestine, which could significantly affect energy-dependent countries like Croatia. The success of the FED and ECB in achieving a soft landing in 2024 will finally provide Croatia, as well as other countries, with an answer about the strength of the potential recession, and thus about the future of the real estate sector, predicts Vlajčić, adding that migrant pressures, large expenditures for aid to Ukraine, and unfavorable economic trends worldwide have already resulted in intensified protectionist policies, the formation of a eurosceptic bloc, and the strengthening of the right in Europe.

A similar trend is expected in the upcoming parliamentary and presidential elections in 2024 across Europe.

– Stronger support for right-wing options will not be lacking in Croatia either, but the disunity among them could benefit the currently ruling party, which is very closely cooperating with Brussels. Accordingly, Croatia could continue to build economic cooperation with pro-European countries. With the potential return of Donald Trump to the scene in the USA, Kyiv could lose the support of its strongest ally, and China could experience an even stronger blow to its dominance in global value chains, predicts Vlajčić.

Increase in Illegal Migrations

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Vlatko Cvrtila

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Vlatko Cvrtila, the rector of Vern’ University and a geopolitical analyst, predicts that next year, the event that marked this year, Russian aggression against Ukraine, will have an impact on geopolitics, but in a somewhat altered context. He adds that Russian aggression has already caused significant disruptions in the energy market, which also affects other sectors.

Additionally, processes of economic fragmentation in the global economy and trade are visible, as well as barriers to free trade resulting from geopolitical and geo-economic turbulence.

– The crisis of supply routes emerged during the pandemic but continued after Russian aggression, so we can expect its continuation next year. Geopolitical fractures in the Middle East and disruptions occurring in Africa will certainly increase migrant waves towards Europe, which still lacks a clear model for accepting asylum seekers, as well as a clear common policy towards illegal migrations. Therefore, we can expect an increase in illegal migrations next year, predicts Cvrtila.

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Sanja Vujačić

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Geopolitical analyst and director of the research program SEE at the Paris Institute IDII, Sanja Vujačić, reminds us of the broader perspective that could shape geopolitical relations, which is the undisguised Chinese ambition to become the main world power at all levels by 2049, thus marking the centenary of the proclamation of the communist republic.

– Looking at the geographical map, it is impossible not to establish that the Chinese, by tracing the silk roads, envisioned and formed a unique continent, Eurasia, under their control, and that the United States is defending against losing influence over that area with NATO’s shield, i.e., a series of military bases in partner countries, to which China is competing with accelerated construction of military infrastructure, which in the future could be a cause for new global war crises, believes Vujačić.

Both Left and Right Populism

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Denis Avdagić

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Political consultant and foreign policy analyst Denis Avdagić says that in the whole story about potential hotspots in 2024, we should not forget that the Balkans have also returned to the geopolitical scene with events in Kosovo, which is not a hotspot that attracts the whole world, but it is important to us, Europe, and especially to us in the Balkans. He claims that we, Europe, as a continent and an institution like the European Union, have actually been lucky, if that can be said, because Russian aggression against Ukraine has aligned policies in the EU and bought us quite a bit of time.

– If it hadn’t, next year we would have gone through a painful process in the electoral process for the European Parliament; we would probably have had a much more painful situation than it will be, says Avdagić, referring to the diversity of populist options that would certainly have dominated the elections had Ukraine not happened.

However, he warns that migration is a topic that has greatly shaken Europe and will be relevant in the electoral processes next year. Europe must, he believes, find a model that will, if nothing else, mitigate the impact of that challenge on politics, but a solution must be found that will be supported by all.

– This is not easy at all; let’s look at how much of a topic it is in America and how long they have been dealing with that challenge. Europe is relatively new to this, and it must find a solution that will be acceptable enough to everyone. If it is not sought, those who will offer simple, populist solutions with populist messages will come. I would not necessarily divide them into left and right; populist political projects take a bit from everything; strict political binarity is not important to them. I believe that this term of the European Parliament will be the last in which mainstream political parties will be able to easily gather a majority if they do not start effectively responding to the problems that concern European voters, believes Avdagić.

American Elections and Energy Prices

Regarding energy, energy expert Igor Dekanić reminds us that the beginning of the Ukrainian war caused a spike in oil and gas prices in Europe in 2022, and the consequences of state interventions and measures by European countries to replace Russian imports with oil supplies from other directions and to replace a larger part of Russian gas with liquefied natural gas resulted in a decrease in prices.

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Igor Dekanić, energy expert

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– Oil and gas prices in the second half of 2023 returned to levels before Russian aggression. The price of gas in Europe returned to around €40/MWh, as it was before the Russian attack. Oil prices in Europe stabilized at around $80/bbl in the third quarter of 2023. They will be influenced by the elections. The most important will be the elections in the USA, as the possible arrival of a Republican president in the White House with the current majority in Congress could have significant consequences for geopolitics and energy. If the American government, for example, chose to be isolationist, focusing on the Middle East and American energy exports such as oil, liquefied natural gas, nuclear fuel, and technology, as well as coal, energy prices could be relatively low. This would stabilize the economy but would not be favorable for the energy transition and the shift to a green economy. The rise of the right and their coming to power in European countries would also support such energy geopolitics and a withdrawal from the energy transition, as the right advocates for the market, capitalism, and minimal state intervention, believes Dekanić.

The Challenge of Musk’s Independence

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Ana Jerković

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This year has been tough for the European economy: economic activities have slowed down, the eurozone has faced recession and high inflation, especially in energy and food. Inflation is, however, slowly decreasing according to the latest indicators, the labor market is stabilizing, which is why forecasts for 2024 are slightly more favorable, notes Ana Jerković from the Institute for European and Globalization Studies (IEGS). The Chinese economy, after stagnation, shows signs of recovery in the last quarter of 2023. According to the OECD, economic expectations for next year are slightly more optimistic than for 2023, and global economic growth is expected to be slight despite challenges.

Europe will, as expected, lag behind North America and large Asian economies, with the highest growth predicted for India, a new important player on the geopolitical scene. If there are no new economic shocks, accelerated growth of the global economy is not expected until 2025. However, according to Jerković, another, this time non-political, person could shape the world in the coming year, Elon Musk.

–​ Elon Musk ​is certainly a unique phenomenon on the world stage; he is considered a relevant geopolitical actor, a kind of pop culture figure of today. He is extremely engaged, voluntarily exposed, and in his activities independent and out of control. Although he is not a statesman, many treat him as such, aware of his power and influence on global events. Musk also has an additional sphere of influence, which is ownership of a private space company that is beyond the reach of governments, and it is precisely in this segment that a certain control needs to be established, which currently does not exist, as space objects, including private ones, are subject to national and military security. Therefore, for now, the greatest challenge with Elon Musk’s geopolitical actions is his complete independence from other actors, unpredictability, and being out of the control of the establishment, emphasizes Jerković, concluding that this could also be the key to many future geopolitical crises.