Businesses see geopolitical tensions as the biggest threat to the global economy right now, according to the latest survey by Oxford Economics.
The finding “confirms” that perceptions of economic risks have shifted significantly for businesses, said Jamie Thompson, head of macro scenarios and author of the survey.
“Geopolitical tensions are now the main focus of concern, both in the near term and the medium term,” he noted.
Around 36% of businesses polled view geopolitical tensions as top risks currently — such as those related to issues over Taiwan, South Korea, and Russia-NATO.
In contrast, a similar survey in April found that nearly half the respondents viewed either a marked tightening in credit supply or a full-blown financial crisis as the top risk in the near term.
The latest third quarter 2023 Global Risk Survey covered 127 businesses from July 6-27 this year.
The findings come amid fraught relations between Washington and Beijing, as bilateral ties hit their lowest in years. Tensions escalated after the U.S. shot down a suspected Chinese surveillance balloon which flew over American air space.
Regarding Taiwan, China has insisted the issue was an internal affair and warned the U.S. it’s a red line that must not be crossed. Beijing considers the democratically self-ruled island part of its territory.
Last week, the Biden administration announced a weapons aid package to Taiwan that’s worth up to $345 million, according to Reuters. The move is seen as likely to anger China.
Meanwhile, Russia’s invasion of Ukraine has strained the Kremlin’s relations with the North Atlantic Treaty Organization. NATO’s expansion has long been a point of contention for Russian President Vladimir Putin, who claims Kyiv’s accession would pose a threat to Moscow’s national security.
Inflation concerns ease
While businesses continue to see high inflation as a “significant near-term risk,” they appear more confident that the problem will eventually moderate, noted the survey.
“Respondents’ expectation for world consumer price inflation stands at 3.7% in 2024, 0.2ppts below our latest baseline forecast,” said Thompson.
“Expected inflation over the medium term has fallen significantly, unwinding the rises seen over the past two years,” he added.
The survey also highlighted easing concerns over banking system related risks.But the issues remain elevated.
Around 30% of respondents still view either a marked tightening in credit supply or a full-blown financial crisis as among the top risks for the near term in the latest survey.
Some investors, such as Kevin O’Leary, have predicted the ongoing cycle of U.S. Federal Reserve rate hikes could lead to more regional U.S. bank failures.
Those institutions were destabilized by the Fed’s monetary tightening cycle that has seen 11 rate hikes since March 2022.
Geopolitical risks continue to factor prominently for businesses as a major concern for the next five years. Over 60% of those polled see it as a “very significant risk” to the world economy.
“As reported last quarter, more than three-fifths of respondents view geopolitical risks as a very significant risk to the global economy over the medium term,” said Thompson.
“An intensification of geopolitical tensions could potentially trigger significant deglobalization of trade and the financial system,” he added.
Deglobalization is the third most cited risk in the latest survey, viewed as “a very significant risk” by 23% of respondents.
Around 25% view early policy rate cuts as among the top upside risks. On China, businesses see “less chance of a China-driven upturn.”
China’s reopening as the top global upside has almost halved over the past three months, down 10% in the latest survey compared with 19% in April.
The International Monetary Fund recently noted China’s post-Covid economic recovery was losing steam and taking a toll on the world economy.
“Continued weakness in the [Chinese] real estate sector is weighing on investment, foreign demand remains weak, and rising and elevated youth unemployment, at 20.8% in May 2023, indicates labor market weakness,” the IMF said in a report.