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Looking ahead, the world is painted as becoming more fragmented
and brittle. Yet the challenges stakeholders face will be
increasingly interlinked and reverberating: Climate change, supply
chain interdependencies, making the energy transition, public
health, and inequities will impact on each other, requiring
coordinated responses. We expect the global political system,
including trade and security alliances, to become more fluid and
flexible as states co-operate across spheres of mutual interest and
contest across spheres of national security.
Geopolitical ripple effects
Global financial integration
Sanctions imposed on Russian individuals and entities raised
reputational risks for businesses operating there, prompting a wave
of corporate self-sanctioning. Prospects for Russian sanctions
removal and corporate self-sanctioning reviews will depend on
conflict trajectories, with additional Russian escalation
increasing the risks further.
Inflationary pressures amplified by the Russia-Ukraine conflict
and monetary policy tightening in developed markets led central
banks to adopt a broad rethink of monetary policy. A wide range of
Sub-Saharan Africa (Botswana, Ghana, Kenya, Malawi, Nigeria, South
Africa, Uganda plus member states of the West African Economic and
Monetary Union), is also seeing tighter monetary policy, with
higher inflation likely to drag on overall economic activity.
Supply chain vulnerabilities
As a major agricultural producer, including among the world's
largest corn and wheat exporters in 2021, damage to Ukrainian
infrastructure, blockades of the country's ports arising out of the
conflict with Russia, raised anxiety around global food security,
particularly for key import markets in the Middle East.
Concerns over energy security arising out of Russia's invasion
of Ukraine has elevated questions over the energy transition
timeline. In the nearer term, we expect to see a widening gap
between those that can accelerate energy transitions and those less
well-positioned. Still, financial markets and the private sector
are likely to be key drivers toward net-zero in the pivotal window
up to 2035 which will determine whether mid-century targets will be
achievable.
China's ongoing COVID containment policy has driven down its
trade volume with knock-on impacts for global supply chains, ahead
of this year's consequential 20th Chinese Communist Party (CPC)
Congress. We expect the "swift and decisive" regional COVID-19
containment responses to remain through 2022.
The United States' supply chain resilience strategy for key
sectors - semiconductors, critical minerals, high-capacity
batteries and pharmaceutical - is accelerating efforts to relocate
production away from mainland China and into geographies closer to
the US market or considered by the US administration to be
allies.
Global Security
The United States placing high importance on its Indo-Pacific
strategy has generated a series of intelligence-sharing, security,
and trading proposed initiatives including the Indo-Pacific
Economic Framework and a proposed Partnership for Global
Infrastructure and Investment to offset growing Chinese influence
in the region.
The Russia-Ukraine conflict contributed to the establishment of
a new North Atlantic Treaty Organization (NATO) Strategic Concept
and drove Sweden and Finland to seek alliance membership, with
accession for the two likely to be ratified on an accelerated
basis.
The negative economic effects of COVID-19, combined with the
economic shocks caused by high inflation, supply chain disruptions
and high energy costs, is likely to raise global political and
unrest risks over the coming six months. Countries such as Ecuador
and Sri Lanka have already experienced such instability with others
such as Peru, Argentina, Pakistan, Tunisia and Lebanon amongst the
countries facing the highest risks.
Migration
Russia's invasion of Ukraine produced a mass population exodus
with more than 5.5 million individual refugees recorded across
Europe and up to a further 10 million internally displaced within
Ukraine, leaving the international community to address a migration
crisis at the center of Europe, likely to impact continental policy
response, labor markets with sectoral impacts in the years
ahead.
With analysis from Natznet Tesfay, Alex Kokcharov, Todd Lee,
Yating Xu, Lei Yi, Thea Fourie, Laurence Allan, Petya Barzilska,
Dijedon Imeri, Carlos Cardenas, Rafael Amiel, Emily Crowley, Jose
Sevilla-Macip, Deepa Kumar, Asad Ali, Jack Kennedy, Blanka
Kolenikova
Posted 27 July 2022 by Lindsay Newman, Director, Economics & Country Risk, S&P Global Market Intelligence
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
