Western economies have proved surprisingly resilient over the last few years, standing firm despite Covid lockdowns, the ravages of inflation and soaring borrowing costs. Astonishingly, the UK and US have both avoided a recession so far, even if former EU powerhouse Germany is facing a double dip.
Yet politically, we live in volatile times, as dictatorships in Russia, China and Iran try to push the West around. Here are five things that could blow up in the year ahead, and take the UK and global economy down with them.
Russia defeats Ukraine. One year ago, hopes were high that the upcoming Ukraine offensive would smash Vladimir Putin’s invasion, helped by Western tanks and missiles. Tragically, it got bogged down in Russian minefields.
The war drags on while US and European resolve fades, leaving Putin increasingly confident of victory.
That would be a disaster for the West, both politically, as it would bring Russia right up to the borders of NATO member Poland, and also economically.
Food prices could soar, as Putin takes charge of crucial Ukrainian wheat supplies. Worst of all, the West would look weak and this would embolden other dictators, such as China’s paramount leader Xi Jinping.
China gets nasty. Western politicians and businesses once had high hopes for China, which they saw as a source of cheap labour, cut-price imports, and wealthy consumers hungry for luxury brands.
Now businesses are pulling out as fast as they can, withdrawing a record £9.6billion in the three months to September 30, scared off by rampant copyright theft, rising labour costs and US trade restrictions.
Many are also worried about the Chinese economy, following last year’s $300billion collapse of property developer Evergrande Group.
As his popularity dwindles, Xi Jinping could take desperate measures. Like blockading or even invading Taiwan, threatening supplies of vital microchips and triggering further conflict with the West.
Middle-East war spreads. Stock markets fell and oil prices surged in the immediate aftermath of the horrific attacks by Hamas on Israel, on October 7. They soon calmed after investors decided the crisis could be contained, rather draw in regional powers such as Iran.
That’s still hanging in the balance, with Iran-backed Houthi rebels from Yemen targeting international shipping in the Red Sea, forcing ships to re-route around Africa instead.
The US has been fighting back by shooting down Houthi missiles and sinking three gunboats, while the UK is ready to attack Houthis in the Red Sea. If Iran or the Houthis target key shipping lanes in the Suez Canal or Straits of Gibralter, they could blow oil prices (and inflation) sky-high.
Inflation climbs again. Stock markets got a real boost as a year drew to a close, with inflation falling sharply in October and November. Everybody from investors to homeownerd started looking forward to falling interest rates, lower borrowing costs and higher growth. But what if it doesn’t happen?
I’m optimistic that price growth will continue to slow, but that could quickly go into reverse if Putin wins or the Houthis hit an oil tanker. Another danger is that the Bank of England is too slow to cut interest rates, extending the pain for borrowers and triggering a needless house price crash.
READ MORE: Britain prepares to launch Red Sea attacks at Houthi militants after chaos
The risk is that markets have raced ahead of themselves and priced in too much positive news on inflation. Their disappointment will be huge. Gloom will spread as it becomes clear the cost-of-living crisis isn’t over.
US election nightmare. If I had a tenner for every time somebody lazily claimed that Donald Trump would trigger World War 3 when he won the US presidency in 2016, I’d be a wealthy man. While he wasn’t my cup of tea, the US economy and stock market did reasonably well on his watch.
A Trump victory in this year’s election would be even more divisive than last time (as will a Trump defeat). Trump is pledging a 10 percent tariff on all imports, which would plunge the world into depression. The UK will be hit harder than most as the US is our largest trade partner.
While some are worried about Keir Starmer winning this year’s UK election, it’s not really in the same league.
With luck, none of these threats will explode in 2024 (or beyond). But after running through that list I get the terrible feeling that our luck may soon run out.
