AS the world steps into the year 2024, it is inevitable to contemplate the trajectory that lies ahead. Will the coming months echo the patterns of 2023, or are we on the brink of further challenges before witnessing improvement? More critically, will there be improvement at all? Examining the prevailing trends, certain realities have solidified, providing a foundation for speculative projections about the year that starts tomorrow.

One of the prominent forces shaping the global economic landscape is the struggle featuring the menace of inflation, disinflation and outright deflation. Throughout 2023, central banks globally, particularly the United States Federal Reserve, embarked on an assertive campaign of interest rate hikes and quantitative tightening (QT) to combat inflation.

This concerted effort resulted in a significant contraction of M2 money supply, with M2 being the central bank’s estimate of the total money supply, including all the cash people have on hand plus all of the money deposited in checking accounts, savings accounts and other short-term saving vehicles.

This contraction mirrored in the decli- ning yields in the 10-year US Treasury and United Kingdom gilts markets, indica- ting an anticipated dip in inflation in the coming months.

Concurrently, the Middle East region is witnessing a massive conflict that is adding to inflationary pressures. The Yemeni Houthis’ attacks on container ships and blockades in the Red Sea have disrupted the global supply chain, prompting major shipping lines to alter routes, thereby increasing freight costs.

While oil prices have experienced a descent, a further escalation in regional conflicts could trigger a sudden spike in oil prices. Predicting the eventual outcome between inflationary and deflationary forces remains challen-ging, but one needs to draw parallels with the three major waves of inflation that were witnessed in the 1970s.

Additionally, 2024 will be host to significant elections worldwide, parti- cularly in societies grappling with increased polarisation along diverse political lines. The outcome of the elections in the US, in particular, will profoundly impact the global trajectory.

As right-wing victories, exemplified by Geert Wilders’ success in Dutch elections, gain momentum in Europe, the potential alignment of the world’s largest economy with similar political ideologies could reshape the international landscape.

Drawing insights from Ray Dalio, the founder of the world’s largest hedge fund, and considering historical patterns when countries reach the end of the ‘Big Debt’ cycle, it becomes apparent that the challenges of 2024 might surpass those of preceding years.

In the light of these considerations, perhaps it is timely to pay heed to the wisdom encapsulated in former British prime minister Gordon Brown’s recent book, Permacrisis: A Plan to Fix a Fractured World. Pakistan, too, should reflect on these insights to formulate effective strategies for the times that lie ahead.

Adil Hanif
London

Published in Dawn, December 31st, 2023