Prices are likely to soar as the main route for one-tenth of the global seaborne trade is under constant fire.
ADVERTISEMENTThe fight against rising prices is far from over, as Yemeni Houthi attacks could potentially continue inflaming prices across the globe this year, the EBRD's chief economist has said in Davos, at the World Economic Forum (WEF).
Beata Javorcik told Euronews Business that "war in the Middle East, and in particular disruptions to shipping, mean that there's always a danger of an increase in energy prices that would fuel inflation."
Several shipping companies such as Maersk, have already diverted their ships from the Red Sea and Suez Canal due to the attacks. Although the alternative routes add significant travel time and costs leading to a knock-on effect on the prices of final goods, with energy prices possibly being most impacted.
Down the line, this could potentially erode the progress made in taming inflation so far, instead fuelling consumer prices more.
How are central banks planning to deal with inflation in 2024?
Headline inflation has gone down considerably in several major economies over the past few months, mainly due to agricultural, natural gas and energy prices returning to pre-Ukrainian war levels.
However, Javorcik notes that “central banks continue to be very cautious. They don’t want to prematurely declare victory over inflation.” This is mainly due to most countries’ inflation still being quite a bit above the generally accepted target of 2%.
Aligning with the EBRD’s Chief economist’s words, the European Central Bank’s (ECB) Governing Council member Robert Holzmann hinted on Monday that the central bank may defy market expectations entirely and hold off on starting interest rate cuts during the whole of 2024.
Volatility in commodity markets could return
Back in February 2022, at the beginning of the Russia-Ukraine conflict, several commodities saw increased volatility and soaring prices, translating to higher inflation for the global economy. These included oil, gas, coal, wheat, maize and metals such as gold, silver and palladium.
At the time, after cutting down on Russian gas, Europe was heavily reliant on the US for liquefied natural gas (LNG) supplies. However, this year, the bloc is likely to be much better equipped, said Javorcik, with reserves of natural gas being practically full at the start of winter 2023/2024.
AI progress may threaten election processes
Adding to the mix, the rapid advancements in artificial intelligence are also a key theme of the WEF this year, along with being a potential risk for several upcoming elections across the globe in 2024, Javorcik warned.
This is due to several AI-powered misinformation campaigns already being launched by numerous players spanning individuals, corporates and governments. This includes deepfake images, as well as attempts to manipulate markets.
As Javorcik highlights, “I think the most immediate concern about AI is this is a year where 70 countries have important elections. So I think most observers recognise the possibility of AI being used to interfere with elections through misinformation.”
Perspectives on European economies in 2024
Javorcik said that the European economy is likely to be better positioned this year than last year, but difficulties remain.
"This year is going to be better than last year in economic terms for Europe, but it still remains challenging," said the chief economist.
“We have to remember that the prices of natural gas in Europe remain five times as high as in the US, and this is eroding European competitiveness," she said. Deindustrialisation also remains a very potent threat to the European economy.
Other global threats include soaring interest rates and the high costs of government borrowing, with investors wanting higher compensation for ongoing geopolitical risks.
For the EBRD, one of the main priorities of the coming year will include advancing the green transition in Europe, with more than 50% of investments in the past year having gone towards the green economy.
