Brace yourself for a riskier world in 2024

From economics to geopolitics to AI and climate change, new risks are emerging.

- Vikan Kiemria

Higher-for-longer interest rates, a global economic slowdown, widening geopolitical tensions, the possible return of a Trump administration in the United States, the abuse of artificial intelligence (AI) and more climate-related disasters.

That's a partial list of the risks facing the world in 2024, according to economists and other experts who monitor these things.

Prediction being a hazardous business, we might find, a year from now, that they didn't get it right. But, meanwhile, let's take them at face value and dig a bit deeper.

Economists broadly agree that after the fastest interest rate hiking cycle in history since March 2023 which has brought inflation down, but not to its target level the US Federal Reserve is in no hurry to shift to easier money policy, unless a recession forces its hand. A long pause, rather than rate cuts, is almost everyone's base case.

While financial markets have enjoyed relief rallies in the expectation that the Fed is done with rate hikes, real economies everywhere could face problems.

After enjoying more than a decade of near-zero interest rates from 2009 through 2021, households and companies could find the sudden adjustment to rates of more than 5 per cent and mortgage rates at multi-year highs painful. Nor has the full impact of higher interest rates been felt; changes in rates typically take 12 to 18 months to work their way through economies.

INTEREST RATE PAINS

But a lot of pain is already showing up. One area where it is especially acute is in the US commercial real estate (CRE) sector, which has been devastated by the double whammy of falling occupancies because of the rise of remote work since the Covid-19 pandemic and higher mortgage rates. More than US$1 trillion (S$1.34 trillion) worth of CRE loans are set to mature between 2023 and 2025, with the amount rising to US$2.2 trillion by 2027.