5. Changing Supply Chains: Governments implementing ‘derisking’ strategies may force businesses to prioritise resilience over efficiency in their supply chains.
Expect rising costs as this shift away from ‘hyper globalisation’ causes supply chains fragmentations and frictions, and is accompanied by an increase in export controls, financial restrictions and sanctions. Watch for the emergence of new supply chain options in response, particularly new corridors in Asia, the Persian Gulf region and Africa.
6. Macroeconomic Conditions: Interest rates are likely to stay higher for longer, as most developed countries face either mild recessions or soft landings for different structural reasons.
The EU and UK are facing stubborn inflation, with Germany particularly struggling. Persistently low unemployment and inflation have not yet gained President Biden support in the polls. There is growing pessimism over global growth (especially in China, below). Debt build-ups and rising debt service burdens bear watching, and their effects on long-term bond rates.
7. The Chinese Economy: The Communist Party of China (CPC) may undertake policy shifts to incentivise foreign investment as China’s economy struggles to perform.
China’s slowdown could continue as real estate problems accumulate, the renminbi struggles against strong US growth and rising US bond yields, and Beijing prioritises national security over growth. But despite the recent shifts in economic policy, it remains to be seen whether a major course correction on the treatment of the domestic private sector or addressing the economy’s structural issues materialises. Instead, the CPC will look to maintain stabilised ties with the US in an attempt to assuage investor concerns and restrict possible Western controls on high tech. China's significant room for fiscal management will also help.
8. Immigration and Populism: Increased migration could embolden populist narratives, heightening social polarisation in turn.
Immigration has re-emerged as a key issue in European domestic politics and will likely play a leading role in the June EU elections. Control of the US’ southern border may also carry electoral salience in November. Physical and economic insecurity in the Sahel and South and Central America could amplify these trends, as could an increase in climate-related displacements. Populist leaders will benefit electorally as a result, as demonstrated in the recent Dutch election.
9. Climate: The energy transition is a rapidly growing issue with many different dimensions for business, notably increased scrutiny on ‘greenwashing’ and greater regulation and state interventions against the backdrop of market-based solutions increasingly deemed insufficient.
The synchronisation of energy availability, security, and decarbonisation will be front and centre for policymakers next year. Energy transition efforts will also take on greater geopolitical significance given competition over access to the goods required for this (e.g. batteries). A persisting lack of engagement from industrialised countries to support both development and climate justice could meanwhile accelerate divides between the Global ‘North’ and ‘South’, especially given the latter’s struggle to manage debt burdens against a backdrop of higher global interest rates.
10. Technology: Advances in AI and quantum technology will change business risk calculations and complicate the regulatory environment, with more interventions on national security and sovereignty grounds.
Great power rivalry will intensify on critical minerals, components such as semiconductors, and fast-emerging technologies. Governments will subsidise, regulate, and exert export restrictions to encourage domestic capacity and protect key research. On AI, its accelerating applications will reveal possibly existential vulnerabilities in business operations and risk controls. Expect growing calls for regulation given perceived security concerns (i.e., on frontier models) and societal impacts. But the US, EU, China and India could all take different approaches, further complicating the international regulatory environment.
