Two wars, 50 elections: The economy is facing rising geopolitical risks
LONDON — The attacks on crucial shipping traffic in the Red Sea straits by a determined band of militants in Yemen — a spillover from the Israel-Hamas war in the Gaza Strip — is injecting a new dose of instability into a world economy struggling with mounting geopolitical tensions.
The risk of escalating conflict in the Middle East is the latest in a string of unpredictable crises, including the coronavirus pandemic and the war in Ukraine, that have landed like swipes of a bear claw on the global economy, smacking it off course and leaving scars.
As if that weren’t enough, more volatility lies ahead in the form of a wave of national elections whose repercussions could be deep and long. More than 2 billion people in roughly 50 countries — including India, Indonesia, Mexico, South Africa, the United States and the 27 nations of the European Parliament — will head to the polls. Altogether, participants in 2024’s elections olympiad account for 60% of the world’s economic output.
In robust democracies, elections are taking place as mistrust in government is rising, electorates are bitterly divided, and there is a profound and abiding anxiety over economic prospects.
Even in countries where elections are neither free nor fair, leaders are sensitive to the economy’s health. President Vladimir Putin’s decision this fall to require exporters to convert foreign currency into rubles was probably done with an eye on propping up the ruble and tamping down prices before Russia’s presidential elections in March.
The winners will determine crucial policy decisions affecting factory subsidies, tax breaks, technology transfers, the development of artificial intelligence, regulatory controls, trade barriers, investments, debt relief and the energy transition.
A rash of electoral victories that carry angry populists into power could push governments toward tighter control of trade, foreign investment and immigration. Such policies, said Diane Coyle, a professor of public policy at the University of Cambridge, could tip the global economy into “a very different world than the one that we have been used to.”
In many places, skepticism about globalization has been fueled by stagnant incomes, declining standards of living and growing inequality. Nonetheless, Coyle said, “a world of shrinking trade is a world of shrinking income.”
Many economists have compared recent economic events to those of the 1970s, but the decade that Coyle said came to mind was the 1930s, when political upheavals and financial imbalances “played out into populism and declining trade and then extreme politics.”
The biggest election next year is in India. Currently the world’s fastest-growing economy, it is jockeying to compete with China as the world’s manufacturing hub. Taiwan’s presidential election in January has the potential to ratchet up tensions between the United States and China. In Mexico, the vote will affect the government’s approach to energy and foreign investment. And a new president in Indonesia could shift policies on critical minerals such as nickel.
The U.S. presidential election, of course, will be the most significant by far for the world economy. The approaching contest is affecting decision-making. Last week, Washington and Brussels agreed to suspend tariffs on European steel and aluminum and on American whiskey and motorcycles until after the election.
“The outcome of the elections could lead to far-reaching shifts in domestic and foreign policy issues, including on climate change, regulations and global alliances,” the consulting firm EY-Parthenon concluded in a recent report.