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It appears that the previous decade has been marked decidedly by a lack of financial and economic stability worldwide. The global economy has weathered several harsh events, including the mid-2014 collapse of oil prices, the outbreak of the coronavirus pandemic in late 2019, the detrimental Russian invasion of Ukraine in February 2022, and the heavy repercussions of Al-Aqsa Storm and ensuing Israeli assaults and genocide in Gaza.
The International Monetary Fund, in its “World Economic Outlook” report for October 2023, projected that current global economic growth is fragile and will not exceed 3% in 2023 and only 2.9% in 2024. The report also indicated that inflation would peak at 5.9% in 2023 before declining to 4.8% in 2024.
A notable sign within international economic relations is the ongoing U.S.-China trade conflict, despite the meeting of the leaders of both countries in the United States in November 2023. The negotiations did not yield any breakthrough regarding the withholding of American technology from Chinese firms or the measures China has taken in response to American decisions.
It’s important to note that the U.S.-China conflict is a clash of interests devoid of ideology. Both nations are firmly rooted in capitalist economic practices, indicating that the global economy’s tilt in favor of the wealthy is unlikely to change, even if relations revert to normalcy.
### The World Economy’s Reliance on U.S. Interest Rate Policy
In 2023, the global economy grappled with various economic issues, including the continuous rise in interest rates, particularly in the American market. This significantly impacted capital markets and raised financing costs in many emerging and developing nations.
The roots of the crisis trace back to the Russian-Ukrainian war in February 2022, the subsequent surge in oil and gas prices, and the rising cost of food, sparking fears of an energy and food crisis similar to those faced by the global economy in 2006 and 2007.
Inflation rates skyrocketed to unprecedented levels in the U.S. and Europe, reaching 9.1%, prompting financial policymakers to aggressively manipulate interest rates to curb rising inflation. Interest rates escalated, settling within the range of 5.25%-5.5% before the U.S. Federal Reserve decided to freeze them at that level in its last meeting in December 2023.
The U.S. Federal Reserve’s most recent meeting signaled an end to the historic monetary tightening policy, with borrowing costs likely to drop in 2024.
The negative consequences of the interest rate hikes in America on both national and global levels included:
– On the American front, the hikes triggered collapses of major U.S. banks, stemming from structural financial imbalances built on low-interest rates, prompting bank depositors to withdraw their savings, leading to liquidity crises. However, the U.S. government adopted policies to support these banks by providing necessary liquidity, thus steering the banks away from bankruptcy.
– Globally, the U.S. interest rate policy continues to steer world financial markets and the making of monetary policies related to interest rates, alongside problems concerning public debt, budget deficits, especially in economies tied to the dollar.
– In the Arab world, the central banks, notably in the Gulf States, mirrored the U.S. Federal Reserve’s decisions by raising their interest rates accordingly.
### The Mysterious Oil Rate Movements
Since January 2023, oil markets have experienced frequent fluctuations due to weak economic growth performances and various political events. Economic news from either the U.S. or China had a significant impact, causing oil prices to fluctuate.
While Brent crude oil prices remained stable at an average of $85 per barrel from January to May 2023, the following period until September witnessed marked declines, dropping to $72 per barrel. September saw prices climb above $90 per barrel, yet the increase was short-lived, with prices dipping once again by December 2023. Current rates for Brent sit between $75 and $76 per barrel, as opposed to the U.S. crude at $71 per barrel. This comes despite the OPEC+ alliance announcing new production ceiling cuts.
The European approach to the oil and gas markets in 2023 was to collectively manage the crisis and attempt to set a unified price for Russian oil, easing financial burdens and creating better conditions—although this hasn’t ended the crisis, especially considering the energy bill for Western countries post the “Russian-Ukrainian war” reached historic highs.
### The Reality of the Arab Economy
The economic reality of Arab countries makes it hard to describe it as homogeneous, both in performance and results. There are oil-producing nations—such as Gulf States, Iraq, Algeria, and Libya—that have their economic and financial structures.
Then, there are non-oil-producing countries with diversified economies like Egypt, Morocco, Jordan, Tunisia, Lebanon, and countries that are either extremely poor or less developed, such as Sudan, Mauritania, Yemen, Djibouti, Somalia, and Comoros.
For oil-based economies, their financial condition fared better in 2023 due to higher oil prices that allowed most oil-producing countries to achieve fiscal surpluses and improve foreign currency reserves, reducing external borrowing. These economies still face perennial issues, namely heavy dependence on crude oil.
For the countries with diversified economies classified as middle-income nations, the majority face a dire financing crisis, especially acute in Egypt and Tunisia. Lebanon’s situation is seemingly intractable despite optimism from a deal regarding maritime boundaries that enable Israel to explore for gas. However, Lebanon has yet to reach an agreement with the International Monetary Fund, and its overall financial situation and living standards are severely negative.
Morocco and Jordan face their economic challenges but can secure financing more easily from international institutions, unlike Egypt, Tunisia, and Lebanon.
Some Arab economies suffered from economic and social crises in 2023 due to armed conflicts, including Libya, Syria, Yemen, Sudan, Somalia, and Iraq, with the severity varying from one to another.
Sudan faces a particularly new challenge, trending towards state disintegration, with its economic resources falling into the hands of contentious factions.
### Turkey and the Stagnation of New Economic Directions
Since May 2023, when President Recep Tayyip Erdogan and his political coalition won the election, Turkey has witnessed significant economic policy shifts. This includes a staunch increase in interest rates from 8.5% to 40%, and a continuous decline of the lira against the dollar, now nearing 29 lira per dollar and expected to hit 30 by the end of 2023.
Inflation peaked at 62% by the end of November 2023, having been around 38% in June. This has had negative effects on citizens’ living standards, even though Turkey still maintains positive performance in its goods exports and tourism sectors.
There seems to be no sign of an immediate improvement in Turkey’s financial and monetary indicators for 2024. However, Turkey’s external economic relations, particularly with Gulf countries like Saudi Arabia and the UAE, improved significantly in 2023, both in trade and the pursuit of investment in the Turkish market.
### Economic Ramifications of Al-Aqsa Storm
Some may perceive the economic fallout of Al-Aqsa Storm on the Israeli side as merely disruptions to trade and economic activities or financial disarray due to war costs and military losses. However, Israel’s economic infrastructure took a severe hit, particularly through achievements of Al-Aqsa Storm orchestrated on October 7, 2023, which demolished the myth of Israel’s advanced technology, including multiple breaches of its security systems protecting the Gaza envelope, and repeated infiltrations into its governmental institutions’ security systems.
This predicament threatens Israel’s reputation as a producer and exporter of technological systems and equipment, potentially leading to current investment withdrawals and future investment deterrence.
Regionally, the operation and attacks by the Houthi group are expected to impact regional tourism and the safety of maritime navigation in the Red Sea, essential for securing global trade.
### Forecasting Economic Conditions in 2024
As the global economy enters 2024, there’s a fog surrounding all issues that emerged in 2023. No settlement has been reached between the world’s major economic powers, the U.S. and China, and neither country has rid itself of their respective internal economic issues, which also hinder their roles in rejuvenating global economic growth—particularly China, burdened by an escalating domestic debt crisis.
The U.S. interest rate policy, with potential downward trends, may help alleviate financing costs, somewhat reducing the financial strain on emerging and developing nations.
Regarding the Arab world, there seems to be no immediate prospect of an economic collaboration capable of shifting the region’s dependence on external forces or leading to a more optimal utilization of available economic resources.
Countries entangled in conflicts within the Arab region, as well as the poorest nations, await external intervention, in times where internal will to settle existing crises is not evident.
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