The Shape of 2024

A World Order Under Stress

It’s that time of year again when we ponder what next year has in store for us.

Ian Bremmer, the geopolitical analyst behind the GZERO newsletter and the Eurasia Group, gave his State of the World 2023 address in Tokyo on Monday (4 December). Ian Bremmer is always worth hearing and in what follows I summarise some of his main points and reframe them from my own perspective. Any opinions expressed are my own.

Bremmer said that he had warned in his previous year’s message that the world was passing through a challenging period – and since then the prognosis has darkened. He thinks that the major political institutions of the advanced world, including most governments, are increasingly losing their capacity to absorb new shocks. I would add that one more global tremor might undermine the entire edifice of the world economy, although hopefully that is a downside risk for 2024.

There is still war in Ukraine which is remaking the security architecture of Europe. And there is the Israel-Hamas war which is threatening to destabilise the Middle East, and which might even precipitate some kind of global religious conflict. The violence perpetrated by Jewish settlers in the West Bank against Palestinians is already a race and religious war in miniature. Pro-Muslim demonstrations on the streets of London and elsewhere have emphasised the cultural fault line that now bisects many western societies. And the Arabian Gulf monarchies fear another Arab Spring precipitated by popular outrage about what is happening in Gaza.

Let’s start with Israel-Hamas. First, Israeli prime minister Benjamin Netanyahu has been kept in power by political parties who believe that God intends that the Jewish people should reside on land which is legally claimed by Palestinians. Some of these people want to drive all Palestinians out of the West Bank. Netanyahu has tried to play the Palestinian Liberation Organisation (PLO – which still presides in the West Bank) against Hamas in a bid to kick the long-envisioned two-state solution into the long grass. Second, the leadership of the Palestinians, including the PLO on the West Bank and of their Arab backers, has been pitiful. It has allowed an Islamist extremist terrorist group, inspired by Egypt’s Muslim Brotherhood, to take control of Gaza – where 2.3 million out of more than six million people who identify as Palestinian live. They preside over one of the most deprived population groups in the world. I would add that history will judge that the Americans have allowed this sorry state of affairs to arise.

For these reasons, the USA has less influence over the outcome of the Israel-Hamas war than many people suppose. Israel seems intent on uniting international opinion against it. The USA is now isolated in its unconditional support for Israel – all other Western nations devoutly wish for a ceasefire, albeit in many cases (like Britain’s) behind the scenes. The resumption of hostilities last Friday (1 December) after a seven-day humanitarian ceasefire makes the prospect of escalation more likely. The Houthis in Yemen – another of Iran’s clients – have been firing missiles on US military and commercial vessels in the Red Sea. US public opinion regarding the conflict is changing, reflecting the country’s changing demographics. More young Americans are questioning their leadership’s unwavering alliance with Israel, especially those affiliated to the Democratic Party. That could make a difference over time, but for the present the Biden administration is totally committed to the Israeli cause – even though it understands that the collective punishment wrought in Gaza will not eliminate Hamas.

For all his bombast, Benjamin Netanyahu’s position is extremely insecure. 80 percent of Israelis believe that Netanyahu was responsible for security failures ahead of the 07 October atrocities. Netanyahu’s trial for corruption has resumed. As soon as hostilities subside it is likely that he will be forced out and that a new coalition government will be formed. A possible successor could be former Defence Minister Benny Gantz, whose name has been mooted. He might be able to start some kind of peace process in which the ultimate two-state solution is put back on the agenda – but that is far from certain, even if opinion in America leans further in that direction.

What about Russia-Ukraine? Over the last twelve months almost nothing has changed. Last Christmas the Russians controlled about 20 percent of Ukrainian territory. This Christmas it is around 18 percent. Despite recent advances across the Dnipro River and some long-distance hits scored against Russian forces in Crimea and the Black Sea, Ukraine’s much vaunted summer offensive on the eastern front has barely moved the line more 20 kilometres. Fatigue is reportedly high in the Ukrainian army as winter sets in. Morale is lower this Christmas than last. President Volodymyr Zelensky’s administration is reportedly riven by internal feuds. This is now largely an old-fashioned artillery war: but Russia manufactures an estimated two million shells a year – far more than all of NATO combined.

Overall, Putin’s strategic position has improved over the past year – despite the late and unlamented Evgeny Prigozhin’s abortive mutiny in late June. Putin was even received with pomp in the UAE and Saudi Arabia this week. In Washington, Republicans increasingly do not want to spend more money on defending Ukraine. That will be even more the case if and when Donald Trump gets the Republican nomination next August – though we shall know if he will be on the ticket by the end of March. If Trump wins the presidency next November, that will be good news for Putin.

The Israel-Hamas war has taken the spotlight off of Ukraine and the Global South is growing impatient. In recent weeks, the Russians have intensified their missile strikes. North Korea is supplying weapons at scale (something about which, Bremmer says, China is not happy). Iran is building drones inside Russian territory. In Europe, there is widespread support for Ukrainian refugees, but the military imperative is wearying.

The most likely endgame scenario for the Russia-Ukraine war is effectively a partition of the country whereby Russia holds on to the territory – Donbas, Luhansk and Kherson – that it has already occupied. That will be labelled “unacceptable” by many – but Ukraine and her supporters will have to accept it as inevitable. The question will be how NATO can ensure the security of the reduced Ukrainian state that will emerge.

It is unlikely, in my view that Ukraine will become a full member of NATO immediately after the cessation of hostilities, but there may be some attempt to guarantee its new borders. The Budapest Memorandum of 1994 was supposed to achieve the same thing – and clearly did not work. And there will be ultra-nationalists in Russia who look forward to round two. Ukraine will almost certainly become a member of the EU, though it will take decades to rebuild. My best guess for the timing of the “ceasefire” (as it will be styled) is somewhere between the re-election of Putin in April and the possible re-election of Trump in November. I strongly suspect that the war as is will conclude before its third Christmas.

The conclusion of the conflict will not look like a glorious victory for Russia. NATO is still expanding. This month NATO is opening a door to the admittance of three new candidate members – Moldova, Georgia and Ukraine – but they will only pass through it once the current war is over. Russia has endured eleven rounds of sanctions with more to come. Europe will continue to boycott Russia’s commodity exports which will have to be sold to China and India at discount prices. Russia will conclude the war having become much more dependent on China – China’s little brother, if you wish. And what will it have gained? A swathe of largely agricultural land with a few smashed cities. Russia will remain a pariah state, its leaders charged with war crimes. And the outlook for its demographics and economic growth is dire right now.

Russians will still not be welcome in Europe until after Putin leaves the scene – but even though he is 71, it is not at all clear now when and in what circumstances that might happen. There are murky figures in the Russian hierarchy who might make even more sinister leaders than Putin. Russia will remain a problem an ever-present threat on Europe’s eastern borders. That is why Europe must bolster its defences.

China

China’s rise in the first two decades of this century has done much to power the global economy as a whole. Yet China has failed to recover from the coronavirus pandemic as anticipated, and growth has slowed. This may seem as god news to those who see China as an adversary, but a China on the back foot might become even more assertive.

The economic condition of China is serious. 40 years of unparalleled expansion is over. Youth unemployment stands at around 20 percent – we don’t know precise figures because the authorities have stopped publishing the data. Manufacturing is contracting and the real estate sector, which accounts for one fifth of the economy, faces a serious debt overhang. Property prices are falling. Lenders face a wave of defaults as debt service costs rise. China faces deflation as a result of slowing consumer spending and falling investment. The IMF expects China to grow at four percent per annum going forward and Moody’s forecasts 3.8 percent – other analysts are more bearish.

Deflation plus high indebtedness hugely increase stresses within the financial system. Chinese people are already worried that the next generation will not be better off than the present one. The sudden capricious changes in policy under President Xi further undermine confidence. On Tuesday (05 December) Moody’s downgraded China’s credit rating from “stable” to “negative”. The ratings agency said policymakers faced the “very challenging” task of managing debts accumulated by state-owned enterprises, while also limiting the effects of a property crisis. The outstanding debt of China’s many state enterprises amounts to about 40 percent of GDP.

For all that, Chinese manufacturing maintains some key competitive advantages. Chinese companies manufactured more than three-quarters of the world’s solar panels last year (including half of those installed in the UK). They also made three-quarters of the world’s lithium ion batteries essential to power electric vehicles. They have world-class tech and biotech sectors and excellent infrastructure. Moreover, the summit between presidents Xi and Biden in San Francisco last month was positive beyond expectations. A deal was struck whereby China will limit exports of certain compounds used in the distillation of fentanyl – which amounts to a big deal for the USA where fentanyl addiction is taking a huge toll.

It’s true that a technology Cold War is developing between China on the one hand and the US and its allies on the other. The US has imposed export bans on sending certain high-end semiconductors to China; and shortly, Bremmer foresees, there will be restrictions on US cloud computing services operating in China. For their part, the Chinese are going to play hardball on the supply of rare Earth metals and other commodities which the West needs to manufacture EVs. But China and the USA are nevertheless engaging with one another like adults. This sets China apart from the other revisionist states – Russia, Iran and North Korea.

According to Bremmer, the Chinese remain geopolitically risk-averse – except, that is, insofar as their backyard is concerned. The presidential election in Taiwan scheduled for 13 January next year may prove pivotal. If the “pro-independence” candidate wins, China may react fiercely. A return to the White House by Donald Trump might further muddy the waters. We will have a better sense of how economic and foreign policy is developing after the Chinese National People’s Congress in Beijing in early March next year.

India

India too will have a general election next year in April. The most populous nation on Earth is highly politically stable. Narendra Modi and his BJP (Hindu nationalist party) have about 70 percent thus his re-election next April is assured. India’s growth rate has now surpassed China’s and that is likely to remain the case for the foreseeable future.

Ian Bremmer sees India as a unique geopolitical bridge between the Global South and the West. Most of the Global South feels alienated from the West as a result of colonialism and other grievances – witness the growing movements for reparations for both slavery and climate change. India’s salience in global diplomacy prevents China from leading some kind of coherent anti-G-7 alliance. It’s soft and hard power will only expand in 2024, as I outlined here in a recent article.

USA

Meanwhile, America, rather than responding to new challenges, becomes more politically polarised. The United States, for all its wealth and power, has become the most divided and dysfunctional democracy in the G-7, says Bremmer. Let’s recall that in September, a Republican-majority House of Representatives ousted a Republican House Speaker for the first time in US constitutional history. Kevin McCarthy was replaced, after a month of wrangling, by Congressman Mike Johnson, a fundamentalist Christian with Trumpian sympathies. The most likely scenario for the presidential election of next November is re-run of 2020 – Trump versus Biden. Only this time Trump has a better chance of winning.

This is a depressing prospect for many and is causing jitters in the chanceries of Europe – though India’s Modi would not give a hoot. Trump has promised that he would end the Russia-Ukraine war “in a day” – meaning that he would force Zelensky to negotiate.

One of the surprises of 2023 has been the extraordinary resilience of the US economy. Inflation has been tamed without a slowdown in the economy nor an uptick in unemployment. Inflation is down to 2.5 percent and Morgan Stanley is predicting inflation of 1.8 percent by next September. Thereafter, the Fed might have scope to cut rates which will ease the pain for mortgage holders.

Let’s not forget that, despite the bitter political polarisation in the USA, the American economy remains dynamic – and ascendant. Florida’s economy is larger than Turkey’s. New York’s economy roughly equals that of South Korea. Texas is another Italy. California’s output is about the same as Britain’s. And the decentralisation afforded by America’s federal system enables the country to become a laboratory for new economic and social policies. Americans tend to move from less successful states to more successful ones. Right now, California is losing citizens while Texas and Florida are gaining them. American universities, despite their tiresome wokeness, are still churning out graduates who pilot new technology start-ups.

As Warren Buffett always says: Never bet against America.

A General Election In The UK

Ian Bremmer had nothing to say about the UK – except an aside in which he quipped that only Britain comes close to the USA in dysfunctional politics.

By my reckoning, the next UK general election must take place no later than 09 January 2025. (Parliament would automatically dissolve on 17 December 2024 by statute, and the election could not be more than 25 days later – and it must be on a Thursday). But in practice, it will occur much earlier. The later Mr Sunak leaves it to dissolve parliament the more it will seem that the Tories are hanging on in desperation and the shriller will be the calls for the government to let the people decide. In any case, there has never been an election campaign in progress over Christmas.

Most governments tend to favour elections in the late spring or early summer when the days are still lengthening, which is why most elections since 1945 have taken place in April, May or June. Boris Johnson’s “Get Brexit Done” election of 2019, initiated in unusual circumstances, was the first December election since 1911. Last week, the Chairman of the Conservative Party, Richard Holden, wrote to party activists to tell them to be on a “war footing” by May. And indeed, Mr Hunt’s cut in National Insurance Contributions of two percent, effective from 06 January, will have fed through into pay packets by then. It is quite possible then that Mr Sunak might surprise us with a May election further to the March Spring Budget.

However, it is unlikely that the opinion polls will have fundamentally shifted by then. As of now, Labour is still polling around 18 percentage points ahead of the Tories. There was a modest uptick in support for the Tories after the Autumn Statement of 22 November; but that may already have dissipated given the alarming immigration statistics released last week. Nevertheless, Mr Sunak may wager that he will make up ground during the campaign. On the other hand, the resignation of the immigration minister, Robert Jenrick, on Wednesday evening (06 December) and its aftermath suggests that the policy disarray with the party is even more frantic than thought. In any campaign the wheels might fall off the Tories’ election bus.

If Mr Sunak goes for October before the clocks go back, he risks the cognitive dissonance of the UK general election clashing with the culminating month of the US presidential election. Sunak-Starmer might be identified as Trump-Biden. The last time a UK election campaign coincided with a US presidential race was in October 1964 – when Labour won.

Labour, thus far, is playing safe, pledging that they will not ramp up either spending or taxes. Indeed, I argued in these pages three weeks ago that the two main parties have essentially identical fiscal policies. That will not make for an exciting debate. Wes Streeting is starting to say interesting things about NHS reform: he was recently in Australia where spending on healthcare is lower than in the UK as a proportion of GDP, yet outcomes are better. Liz Kendall might come up with some ideas on welfare reform; but overall, Starmer’s Labour looks unexcitingly cautious. What next year’s general election will have in common with the 1997 election in which Tony Blair swept to power is that there is a widespread desire for change.

The writer and podcaster Andrew Sullivan (British by birth, American by adoption) recently wrote in his Weekly Dish newsletter that the mood in his home country was one of utter pessimism suffused with impotent rage. Even Nigel Farage thinks that Brexit has been a failure. What I foresee is something that I don’t think is well understood: that the Brexit debate will be re-animated during the general election campaign. The inadequate deal to which Boris Johnson acquiesced will be held up to the light. Our relationship with Europe, like the Ghost of Christmas Past, will haunt the Tories forever.

2024: A Year Of Critical Elections

There will be a slew of critical elections in 2024 culminating in the grand opera (or rather opéra bouffe) of the US presidential and congressional contest of Tuesday, 05 November. The latest twist in that contest was President Biden telling donors on Tuesday that he was only running to keep Trump out of the White House. Look out also for the South African presidential election in June and the Japanese general election in October, about which I shall have more to say.

I’ll offer some specific predictions for 2024 just before New Year’s Eve. I don’t think we shall feel either richer or poorer by Christmas next year; but I suspect we shall feel more nervous, for reasons I shall elaborate shortly.

Victor Hill: Victor is a financial economist, consultant, trainer and writer, with extensive experience in commercial and investment banking and fund management. His career includes stints at JP Morgan, Argyll Investment Management and World Bank IFC.