Presentation

Kristen Hallam

S&P Global Market Intelligence sees 5 key overlapping themes for the year ahead. In this episode, we explore the theme of geopolitical reordering. National interest objectives will influence reordering of relationships between countries and in multilateral forums impacting global challenges, flows of trade, and investments.

An important indicator underlying the direction of these risks in 2024 will be the outcomes of more than 75 scheduled elections, half of which will be presidential elections. The outcomes will have major implications for policy direction and priorities.

I'm Kristen Hallam, Lead Content Strategist for Global Intelligence and Analytics at S&P Global Market Intelligence and your host for this episode of The Economics And Country Risk Podcast. Here to discuss geopolitical reordering is my colleague, our Head of Europe Insights and Analysis, Laurence Allan. Thanks for being here today, Laurence, and welcome to the podcast.

Laurence Allan

Thank you, Kristen, and thanks for inviting me to the pod.

Question and Answer

Kristen Hallam

Laurence let's set the scene by talking about the upcoming elections. Too many to go through in one podcast episode, but let's start with one on your doorstep, the EU Parliamentary elections. What are the potential policy implications of those polls?

Laurence Allan

Yes, it's a big year for elections 2024, Kristen. As you've indicated, we have many dozens of elections, some of which, of course, will be more free and transparent than others, some of which will be more important than others. But of course, having so many elections in 1 year also means they'll have an impact on each other.

For the European Parliament elections and then the subsequent choice of who the next European Commission and the next European Commission head will be, of course, there are many pretty significant policy implications. I think thematically, one obvious focus for those European Parliament elections and especially after the outcome of the Dutch elections, where the far-right candidate, Geert Wilders won the most votes is if right-wing groups in the parliament will make major gains.

And that outcome in terms of policy would most obviously, maybe most importantly, likely slow the momentum towards green policies towards implementation of those policies and with a particular impact, most notably on agriculture and land use and the center-right European People's Party, the EPP, which is basically the coalition of center-right parties in the European Parliament, has positioned itself pretty clearly against the rollout of new policies, and it's openly advocated against the adoption of a number of energy transition stroke climate-related policies such as nature restoration, regulation, and a bunch of others.

And outside of that pushback against different elements of climate-related policy has been seen over the last few months in several member states in different ways, including in Germany, around the domestic home insulation, in the Netherlands, around nitrogen levels and farming in Italy on multiple issues.

And in non-EU countries, most obviously in the United Kingdom where the Prime Minister recently pushed back on a proposed ban on the sale of petrol cars from 2025. That will need to be balanced a little bit against other developments at the national level where electro trends in some member states appear to mitigate some of those risks.

At most recently, an example of that would be the victory of Donald Tusk in the elections in Poland a couple of weeks ago, leading in electro coalition, which is, in general, more favorable towards EU climate policies and it's outgoing PIS, predecessor. So it's not entirely the case that we should be worrying existentially about the growth of a potential leverage for some of these right-wing parties against the climate policies in the EU, but it's something that we're keeping a very, very close eye on.

Kristen Hallam

And how might we see other geopolitical actors responding to the outcome of the EU elections?

Laurence Allan

I think the most obvious issue to look at here is the level of support for Ukraine in the EU and whether a new European Parliament and European Commission alignment would have the same level of support for Ukraine that it's shown over the last almost 2 years now, both in terms of material support and aid and on political support that's driven many of the sanctions against Russia. So obviously, Russia will be looking at this very closely.

Ukraine will be looking it at very closely as well as other countries who have a pretty significant level of engagement in the Russia-Ukraine scenario, including, of course, the U.S., which has its own presidential elections coming up towards the end of 2024.

But other players will also be keeping a very close eye on this, including China, which has attempted to balance itself between Russia and EU, the U.S. and allies around Russia, Ukraine, and India, which has equally attempted to maintain a disinterested, neutralist position.

So a lot of other economies and governments and operators in those other jurisdictions will have a pretty close eye on the makeup of the European Parliament because of the policy outcomes and of the European Commission because of its executive function which has been so key to drive in support for Ukraine since February 2022.

Kristen Hallam

Now you've touched on energy policy. You've mentioned Ukraine, and that naturally leads to the next question that I was going to ask you. So in late 2022, the EU was concerned about sourcing enough fuel to make it through that potentially a cold winter following the sanctions against Russia. What are our expectations around sanctions now and their impact as we enter 2024?

Laurence Allan

Well, the first thing to this is a bit more contextual. The gas storage levels in Europe are far higher than they were coming into Europe's winter last year, so some of the pressure is eased. But it's true that the EU is currently considering another package of sanctions. And our own assessment of the Russian-Ukraine war is that we're not going to see much in the way of step change in the next 12 months or so. So we're looking at a lot more.

So there's a little prospect of a really radical change in the sanctions, the packages or the direction unless, of course, EU member states are more influenced by positions less sympathetic to Ukraine, which is something we'll find out over the course of 2024 in the European elections, amongst other things.

But given the political difficulties of radically expanding sanctions to, for example, cover new sectors, the main focus is going to continue to be on existing sanctions, like the G7 oil cap and making it more difficult to circumvent those sanctions. So that will mean a continued focus also on third countries some which have allegedly reexported dual-used goods to Russia.

And alongside that, we're going to continue to see efforts to diversify for Europe, the energy mix and reduce dependence on Russia in that regard. So in terms of the sanction’s regime, we think that the sanctions are going to remain high, that they will expand. But from an EU perspective, there are many political challenges to widening those sanctions into new sectors, for example.

Kristen Hallam

And for listeners who were interested in sanctions evasions, I encourage you to check out our previous podcast episode on deceptive shipping practices. Laurence let's do a little globe driving now. You did do that in one of your previous responses, but I'd like to shift our conversation to the Global South. We've talked about the rise of the Global South a fair bit in 2023. What do we mean by the Global South? And will we be hearing more about it in 2024?

Laurence Allan

Well, there are some pretty contested views about what the definition of the Global South should be running from everyone that is not a developed economy to a bifurcation between the so-called poor south and the power south and all sorts of different alignments. From our perspective, we're less concerned about labels and more about how groups of countries align around specific issues.

So from that perspective, we are very interested in what Brazil's presidency of the G20 in 2024 is going to bring and further developments in the BRICS group of countries, which now includes further 6 to add to the original grouping. Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, United Arab Emirates, and up to 40 other countries who have expressed an interest in becoming part of the BRICS.

If we're talking here about some sort of cohesive sense of what does the Global South mean, the BRICS group is a great example of what it can mean and what it might not mean. There's definitely going to be closer alignment around, for example, challenges to the way that the multilateral system works, which many -- in countries ranging from China to Brazil, if you guys being too U.S., Europe-centric.

And so we'd expect to see that in the BRICS group, there’s going to be a push towards, for example, finding ways to challenge that status quo, potentially to think about how financing turns from, for example, IMF and the World Bank are calculated and continuing to build an alternative slow though it might be to the exclusive dominance of the U.S. dollar in international reserve currency.

Having said that, both within the G20 under the Brazilian presidency and within the BRICS, of course, countries that are understood to be part of the Global South, have at least as many differences as similarities. So interestingly, I think the expansion of the BRICS, as an example, brings that group in as many challenges as it does opportunities.

Kristen Hallam

Well, based on your answer there, I am beginning to understand why it's hard to define the Global South, and let's put a pin in the G20 chairmanship. I definitely want to get back to that. But first, let me ask you since there are many in 2024, are there any elections in the Global South, however you might define that, that you'll be watching closely.

Laurence Allan

There's a couple that we can immediately identify as being particularly significant for one reason or another. The most obvious is India, where clearly the governmental and policy stability that Prime Minister Modi has been able to enjoy over the last few years may be challenged. And for us, really, the key issue here is whether a new or continuing government is governing in a full majority or in a coalition.

A coalition government will obviously reduce scope for continuity in policy even on foreign policies. So there may be some slowing of India's pretty consistent geopolitical policies in the last 3 or 4 years as it sought to take advantage of these global dynamics to position itself more strongly and become a bigger influencer. Having said that, probably in respect of India, will continue to try to be a leader of so-called Global South countries.

The second particular interesting case for different reasons is South Africa, where if the African National Congress wins any less than 40% of the vote, we're very likely to see, again, a coalition government, but possibly with a more policy radical partner. And that would clearly, significantly increase the probability of more radical policies, for example, in corporate taxes, on local content, requirements and on land expropriation.

And then, again, have a very significant elections in Mexico, where AMLO's 6-year term is coming to an end. Currently, we have 2 leading candidates, Sheinbaum who is the government candidate, and Galvez from the main opposition of electro coalition.

We don't expect to see a major shift in strategic alignment, but we will be looking very closely, especially in the context of U.S. electro campaign next year when language around drugs and migration often comes to the surface more strongly and looking at that to see how that impacts relationship between the U.S. and a potential new Mexican government.

Mexico is a particularly important case because it has been one of the clear beneficiaries of the reshoring dynamic that's developed over the last 3 or 4 years and is one of the primary beneficiaries of that. And any significant instability or change of direction around policy from a new Mexican government would be likely to have at least some impact on that.

Kristen Hallam

Yes. It's a really good point about reshoring. So let's get back to the G20. And Brazil, as you said, is going to chair the G20 in 2024. How is President Lula likely to leverage that chairmanship?

Laurence Allan

Well, he's likely to attempt to leverage that chairmanship, which, of course, is a different thing from actually being able to do so. I think, primarily through probably 2 or 3 issues. The first is on something that I've already referred to, which is on reform of the multilateral system. And I think here, particularly, with regard to lending conditions for emerging economies where Lula wants to position himself as a leader of the Global South in that aspect.

The second thing that we're likely to see is that Lula will attempt to bring food security issues higher up the agenda for the G20. And it's for all the reasons of Global South solidarity you might expect, but not least as well because Brazil is an agro-exporting powerhouse and therefore, both has the conditions to be a leader in that field, but also is able to leverage that for potential political benefit should it so choose.

And then more widely, I think, interestingly, we're likely to see quite a contentious year in the G20, given what I've just mentioned around Lula's likely ambitions because that's likely to cause challenges to reach in smooth agreements and compromised positions between developed economies who are members of the G20 and emerging economies because clearly, there are different ambitions and different objectives for many of those countries.

So we'll be looking pretty closely at some of the early meetings in the year of the G20 for indications of what the direction of travel looks like. So some of the share plus meetings, the technical meetings, the proprietary meetings to get a clearer view of where we think the G20 is going to be by the middle of the year.

Kristen Hallam

Well, that sounds like a future podcast episode right there. So I'll make a note of that. So as I mentioned in the intro, geopolitical reordering is 1 of 5 themes we'll be watching in 2024. How do you see this theme intersecting or overlapping with our other themes, which for the benefit of our listeners, our economic fault lines, resource security, supply chain resilience and logistics rewired.

Laurence Allan

They all intersect to greater or lesser degree. And that's really kind of a key message from the work we've done thinking about 2024. And today, we've not even touched on the issue with Gaza conflict, which is a pretty clear example. If we think about development of potential conflict scenarios, whether or not there's an escalation to a regional level, that would have very profound implications for supply chain and potentially for reshoring and potentially for security alignment elsewhere.

We've also already today discussed a number of issues globally, which will clearly influence each other. For example, how hard EU pushes on energy transition will have significant impacts globally on resource security, whilst competition for those resources will impact key strategic decisions for many governments and companies and the extent to which national security considerations will shape economic and industrial policies.

I'll just take one concrete example of that. If we think about the Carbon Border Adjustment Mechanism in the EU, which is now formally being implemented, although only in a reporting phase at the moment, that is effectively the EU exporting its own regulation around all manner of different industries, inputs to other parts of the world.

And that's clearly going to have a cascading effect through all of the 5 key pillars that we've identified for next year, which you just enumerated. And those decisions will feed down into a plethora of locations, sector-specific risks, opportunities and considerations which companies, strategic planners and others will have to take over the next few months.

Kristen Hallam

Plenty of ground to cover in 2024. And speaking of covered ground, we have covered a lot today. Any final thoughts Laurence for our listeners?

Laurence Allan

We've been talking at quite a high-level today about these big geopolitical movements, 70-plus elections. It remains the case though I think for us, the location-specific issues also feed up and critically shape that strategic picture.

Whether that be water shortage related to civil unrest around the Panama Canal which impacts global trade routes, whether it be local challenges to the social license to operate around mining key minerals, or whether it be higher levels of local content requirements across many jurisdictions sometimes driven by national security concerns.

And I think critically, all of these drivers influence and amplify one another in non-developing in isolation. So governments, businesses, policymakers will respond and will have to respond by looking for fluid and flexible strategies to develop their interest, to take advantage of opportunities, to mitigate risks.

We're very lucky in-house here to have a very wide range of assets and data sets for maritime trade, for example, for leading economic indicators, for industry and supply chain that allows us to identify and track these key indicators for economic, for political, for physical risk and helps us to assess and forecast how these factors influence each other and will shape the landscape for our clients throughout 2024.

So that very holistic mixture of indicators and assessment, I think, is the key message for an unstable, disjointed world that we need to be adept at being flexible and fluid around the way we think about that.

Kristen Hallam

Laurence, thank you so much for sharing your insights with us on the podcast today. It's been a fantastic talking with you, and we'll definitely have to have you back, if you're willing.

Laurence Allan

Absolutely. Thanks for inviting me on, Kristen. It's been a pleasure.

Kristen Hallam

All right. And thanks to you, our listeners, for tuning in. If you'd like a copy of our 2024 themes report titled A Disjointed World, please use the link in the description of this episode.

Copyright © 2024 by S&P Global Market Intelligence, a division of S&P Global Inc. All rights reserved.

These materials have been prepared solely for information purposes based upon information generally available to the public and from sources believed to be reliable. No content (including index data, ratings, credit-related analyses and data, research, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P Global Market Intelligence or its affiliates (collectively, S&P Global). The Content shall not be used for any unlawful or unauthorized purposes. S&P Global and any third-party providers, (collectively S&P Global Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Global Parties are not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the Content. THE CONTENT IS PROVIDED ON "AS IS" BASIS. S&P GLOBAL PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Global Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. S&P Global Market Intelligence's opinions, quotes and credit-related and other analyses are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P Global Market Intelligence may provide index data. Direct investment in an index is not possible. Exposure to an asset class represented by an index is available through investable instruments based on that index. S&P Global Market Intelligence assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P Global Market Intelligence does not act as a fiduciary or an investment advisor except where registered as such. S&P Global keeps certain activities of its divisions separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain divisions of S&P Global may have information that is not available to other S&P Global divisions. S&P Global has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P Global may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P Global reserves the right to disseminate its opinions and analyses. S&P Global's public ratings and analyses are made available on its Web sites, www.standardandpoors.com  (free of charge), and www.ratingsdirect.com  and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P Global publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

© 2024 S&P Global Market Intelligence.