Geopolitical Shocks and Climate Change Will Remain Biggest Risks in 2025, Says EIU Report

"Hopes that the world will one day return to normal have been continually dashed since the covid-19 pandemic, and 2025 will be no different," the Economist Intelligence Unit (EIU) says in its Industry outlook 2025 report that explores the challenges, opportunities and trends to watch in the following six industries: energy, financial services, consumer goods and retailing, technology, automotive, and healthcare. The report further says: "Although working and travel patterns are normalizing, the economic and political outlook remains uncertain. EIU forecasts that real GDP will grow by a subdued 2.6% in 2025, similar to 2024 but slower than the average for the ten years before the pandemic." What is more, "The US economy will slow as labor markets tighten, but China's will accelerate slightly, amid stimulus and reviving trade. Those of the EU and Japan will also tick up, but only smaller developing markets such as India will deliver significant growth."

Geopolitical tensions and trade barriers will force more shifts in supply chains, amid subdued business growth. The EIU also presents the following predictions for 2025:

• Inflation is expected to ease, allowing for further monetary easing.
• Prices for agricultural and energy commodities will fall, but those for industrial raw materials will rise.
• Geopolitical risks will persist amid wars in Ukraine and the Middle East, while rising trade barriers between the EU, the US and China will reshape supply chains.
• Climate change will increase geopolitical tensions. National climate pledges will be updated at COP30 in November 2025, but much will depend on US leadership.
• Investment in technology, especially artificial intelligence (AI), will remain strong, but tech companies will face regulatory pressures, investor impatience and scrutiny over energy usage.

According to the EIU, "Falling inflation will allow monetary easing to continue. We expect the Federal Reserve (Fed, the US central bank) to cut interest rates by a further 50 basis points during 2025. We also expect prices for agricultural commodities and industrial raw materials to move in different directions in 2025- 26. Although agricultural prices will continue to trend downwards, prices for industrial raw materials will rise again, particularly for base metals that benefit from the green transition. As for energy commodities, prices will fall on average, but remain at risk from political shocks."

The UK-based company provides the following key global forecasts for each sector covered by its report:

• Energy: Fossil-fuel markets will continue to face geopolitical risks amid conflicts in the Middle East and Ukraine, but investment into renewables will remain strong, particularly in China.
• Financial services: Falling interest rates will weigh on bank profit margins, leading to lower dividend payouts, but the Basel III endgame will be eased or delayed further.
• Consumer goods and retailing: Global retail volumes will expand by 2.2%, helped by disinflation, but regulations around online retailing will tighten further, particularly for high-volume low-price Asian retailers such as Shein and Temu.
• Technology: More countries will start using satellite internet, but use cases will be limited to enterprise clients—military and maritime. Amazon's Kuiper will disrupt the market duopoly of Starlink and EutelSat OneWeb.
• Automotive: After a difficult few years, annual new-vehicle sales will reach a record 97.2m units in 2025. We forecast that sales of new cars will rise by 2%, commercial vehicles by 4% and electric vehicles by 16%.
• Healthcare: Global healthcare spending will outpace inflation, growing by 1.9% in real terms. The World Health Organization will make climate change the focus of its 14th four-year general program, which starts in 2025.

Companies and investors alike should take note that geopolitical shocks and climate change will remain the biggest risks in 2025. The EIU's "baseline forecast assumes that another large-scale war will not break out in Asia or the Middle East. However, the continued threat of geopolitical conflict, in addition to the continuing war in Ukraine, will lead to economic reconfiguration and policy divergence." Moreover, "The EU and the US are already raising barriers against Chinese exports in areas from  automotive and technology to healthcare. Chinese retaliation is likely to intensify in 2025 as rival blocs emerge across the world. These trends," according to the report's authors, "will reshape supply chains over 2025, and could upend our forecast of falling commodity prices and inflation."

Regarding climate change and how efforts to mitigate it will play in these political rifts, the report notes that "At COP30 in November 2025 governments are due to update their national climate pledges (NDCs), but much will depend on US leadership. The debate over environmental, social and governance (ESG) reporting will intensify as regulations enforcing disclosure come into effect in the EU and elsewhere." In addition, "EU climate regulations, due to come into force from 2026, will also have an international impact on trade by forcing multinational companies to monitor their supply chains."

While investment in technology, particularly AI, will be strong as projects gather pace, "technology companies will face pressure from several directions as regulations tighten (particularly in Europe), investors become more impatient for profits and their energy usage comes under more scrutiny." I agree with the EIU that "Companies will need to navigate these new requirements, while also trying to reconfigure their supply chains and seek out areas of growth."

What challenges, opportunities and trends are you watching as we celebrate the beginning of 2025?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Report Presents Current Use Cases and Election Risks of Utilizing GenAI

"Since OpenAI (US) launched ChatGPT in November 2022, AI, especially generative AI, has been driving investment for corporate entities, "According to a white paper published by The Economist Intelligence Unit (EIU). "Nvidia, Microsoft and Apple (all US) have all been racing to be the most valuable companies in the world, with Nvidia leveraging its chips, Microsoft its cloud, and Apple its iPhone and other hardware. They are all looking to create a compelling ecosystem, even though this may put them even further in the crosshairs of regulators." The report crucially asks: "is progress in AI moving the technology from an experimentation to an implementation phase?"

The report looks "at how companies have been using generative AI to date, and whether AI-generated content has had a major impact on elections so far in 2024." Key findings include:

• The launch of ChatGPT and similar services has democratized the use of artificial intelligence (AI) in many industries, and companies are now experimenting with and implementing the technology.
• The main use cases so far for generative AI have been to improve operational efficiency, enhance innovation and support customer service through using chatbots.
• Most businesses still rely on non-generative AI, however, and it remains important for them to understand the limitations of generative AI technology, such as hallucinations.
• The biggest impact in the short term will be felt during democratic elections, particularly in countries with a polarized electorate, a fragmented information ecosystem and global influence (including the US).
• As AI implementation continues, sustainability will become a major barrier, given that generative AI systems use a lot of electricity and have a large carbon footprint.

Addressing how companies are using generative AI, the report points out:

Companies in multiple industries have been experimenting with generative AI. Although the technology is new, two of the three major use cases across sectors are typical of many digital transformation strategies. The first is to improve operational efficiency, either in terms of increasing productivity or improving manufacturing and operational processes, often to cut costs. In the tech sector, this often includes using AI to speed up coding, or it can optimize internal processes such as training. Companies are also looking at technology to drive new revenue streams: generative AI is driving innovation across multiple sectors such as energy, financial services or healthcare, for example by making it easier to digest and analyze research papers. It is also used in customer services or to create better client-facing customer experiences. As the technology runs on large language models and is capable of dealing with vast amounts of text (as well as other media such as images), this is an area where development will continue across several industries, not just to interact with customers, but also for marketing purposes.

The EIU provides examples on how companies in certain sectors are using generative AI to drive innovation, efficiency and improve customer service:

• Automotive
• In-vehicle voice assistants
• Chatbots to facilitate sales leads online
• Consumer Goods
• Creating custom products
• Voice/text enabled customer service assistants
• Inventory management
• Energy
• Aiding oil and gas delivery
• Customer apps to optimize energy demand
• Financial services
• Insurers use it for underwriting
• Custom GPT based on internal data for advisors
• Cashflow management
• Healthcare
• Drug development
• Custom GPT-based database to help with research and development
• Chatbot for public healthcare

Regarding how AI-generated content can have an impact on elections, the report notes: "Generative AI is not only being integrated into the corporate world; it is also infiltrating the political world. With 2024 being a year of multiple elections, and more than 4bn people called to vote, the impact of AI-generated content (both legitimate and fake) in election campaigns is only just emerging and will only increase."

As for sustainability becoming a major barrier to AI adoption, the EIU explains that "AI will continue to be implemented in 2025, but we expect that the main focus will be on sustainability. The 2024 Electricity report from the International Energy Agency (IEA) noted that global electricity demand from data centers, driven by AI usage, could double between 2022 and 2026, adding to the grid the equivalent of Germany's national consumption. Regulators are already looking into the issue."

Moreover, "In the US, the Artificial Intelligence Environmental Impacts Act of 2024 was proposed in March 2024 to assess and mitigate the environmental impact of AI; however, it is unlikely to become law before the November 2024 elections. The EU is further ahead, with the European Commission adopting the Energy Efficiency Directive (EED) in March 2024, which Germany has already implemented into law. From September 2024 data center operators will be required to report on areas such as data volume, renewable usage or waste utilization to reduce energy consumption and carbon emissions."

I support the EIU's conclusion that "The implementation and evolution of AI will be an ever ongoing process. The technology needs to be scaled up, and proponents need to move away from overoptimistic forecasts of artificial general intelligence (AGI) happening before the end of the decade. AI does not need to be perfect to have an impact. In fact, everyone should be aware that it is not perfect, and its usage will depend on the use case and require critical human oversight."

How is your business utilizing AI?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Growth Is Proving Surprisingly Resilient in the Face of High Interest Rates and Geopolitical Risks, Says EIU Report

In its latest global economic outlook report, the Economist Intelligence Unit (EIU) "forecasts more fragmentation and regionalization in the world economy in 2024-28 as alliances tighten and competing blocs form." What is more, "The return of industrial policy, including sanctions and the provision of new incentives, will push firms to adopt more inefficient supply chains, stoke trade tensions in strategic sectors and make it difficult to compete across the global marketplace. These developments will drag on growth potential." The EIU expects "global real GDP will expand by 2.8% a year on average over the next five years—below the 3% of the 2010s, which was hardly a stellar decade for the global economy."

The UK-based organization adds that "In the near term, however, the global economy is showing resilience in the face of international conflict and higher interest rates. This mainly reflects the remarkable strength of the US economy, which is driven by strong household finances, a rising trend in manufacturing investment and a booming technology sector. Elsewhere, the picture is less dynamic but short of a downturn." Moreover, "Momentum in Europe will build gradually in 2024. Modest government stimulus in China is helping the economy to in the Middle East as the conflict in Gaza continues. Russia's invasion of Ukraine, now in its third year, shows no sign of resolution. Flash points in Asia, such as in relation to the South China Sea and Taiwan, will pose a persistent threat to the fragile stability that has developed in US-China relations. The diffusion of global power and uncertainty over the direction of US foreign policy underpins this rise in geopolitical risk."

Other key findings from the report include:

• 2.5% global real GDP growth in 2024 (compared with 2.4% previously), meaning growth will be unchanged rather than slowing from 2023. Growth is proving surprisingly resilient in the face of high interest rates and geopolitical risks.
• The change in global growth reflects another upward revision for US growth in 2024 to 2.2% (from 2% previously), upward revisions for several European economies that have pushed euro area growth to 1% (from 0.8%) and an upward revision for Brazil to 2.1% (from 1.8%).
• Reduction of expectations for future monetary policy loosening, removing one 25-basis-point cut from the loosening cycles of both the Federal Reserve (the US central bank) and the European Central Bank in 2024-25. In contrast, the EIU now expects the Bank of England (the UK central bank) to cut quicker than previously forecast, lowering its rate to 3.5% by end-2025 (compared with 4.25% previously).
• The US dollar effective exchange rate is now forecast to appreciate for a third consecutive year in 2024—the EIU previously expected a mild depreciation. This reflects a stronger depreciation in the yen's value than previously forecast and the fact that the EIU is no longer forecasting euro appreciation.

On the topic of how climate change and AI may threaten global convergence prospects, the report says:

The green transition and technological change will be among the major trends shaping global economic prospects over the next five years. In both cases, they seem set to diminish convergence prospects for developing economies. Poorer countries will be disproportionately affected by climate change and will struggle to secure financing to mitigate its impact. Although we are skeptical about the scale of productivity gains from artificial intelligence (AI), those improvements that do emerge will accrue mainly to developed economies; this will create challenges for countries aiming to move up the manufacturing and services value chains. We still expect some emerging markets to stand out, however, helped by being fairly insulated from geopolitical tensions and rising trade barriers. India is forecast to expand the fastest of any major economy in 2024-28, and Mexico will benefit from nearshoring trends.

Do you agree with the report's findings? How are you preparing your business for a rise in geopolitical risk?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Singapore, Denmark and the US Are Predicted to Have the Best Business Environment From 2024–28

The Economist Intelligence Unit's (EIU) business environment index measures the attractiveness of the business environment in 82 countries and territories, examining 91 indicators spread across 11 different categories. According to the latest business environment index, "Singapore, Denmark and the US will be the three geographies with the best business environment over the next five years." What is more, as reflected in the chart below, "Several west European economies, alongside Canada, Hong Kong and New Zealand, make up the remaining top ten best places in the world to do business. These are all advanced economies and long-standing strong performers in our index, so tend to be safe bets for investments. However, both headline and per capita GDP growth rates are likely to be fairly stable and slow."

The EIU also explains, through the image below, "geographies that see the biggest improvements in score in our index in the next five years (2024-28) compared with the past five years (2019-23). These are not the same economies that will see the fastest real GDP growth in 2024-28—although Qatar and India will grow very strongly—rather, they are places where we expect the most significant policy improvements, infrastructure investment or growth in market opportunities." The UK-based organization adds that its "model suggests that their improvement in our business environment index may subsequently result in an uptick in per-head growth in real GDP, investment spending and FDI."

Regarding those countries already in the EIU's index that scored strongly, the report points out that "Qatar has implemented a US$220bn investment program over the past decade, mainly focused on infrastructure. Its business environment has benefited from the expansion of Hamad International Airport, the road network and tourism infrastructure." Furthermore, Lithuania has long been open to trade and investment, but a major tax reform will soon make it more attractive by extending corporate tax relief and shifting the tax burden away from labor. Greece sees the biggest improvement in the business environment in our index over this period. This reflects the impact of a pro-business government, led by the New Democracy party, now in its second term, that has undertaken reforms, cut taxes and boosted business confidence."

With respect to the world's most populous nation, the EIU says "India is the only single-country market that offers a potential scale comparable to that of China." The South Asia country's "youthful demographic profile promises both strong demand and good labor availability. Alongside solid economic fundamentals, digital infrastructure and favorable demographics, more policy support is being introduced to attract manufacturing investment."

Other geographies further down the EIU's ranking where they expect a strong improvement include Serbia, which "has seen a virtuous circle from its openness to FDI in the past, which has driven growth and attracted further investment, including in higher-value-added sectors. A recent strengthening of macroeconomic policy and institutions supports market stability."

Moreover, "Argentina's sharp improvement in score largely reflects the free-market reforms that we believe the administration of the president, Javier Milei, will introduce—in particular, policies to boost private enterprise and competition and attract foreign investment. In the Dominican Republic, the current Abinader administration, which we expect to be re-elected in May, will continue its business friendly policies. It is encouraging investment into the tourism sector (for example with port upgrades for cruise ships), and improving logistics infrastructure to become a regional transport and distribution hub.

Places with weak business environments but potential for improvement include Kenya, Angola, and Venezuela. As the EIU explains:

Kenya passed a Privatization Act in 2023, which will help to trim the state’s excessively large economic footprint while boosting the private sector. Angola, while close to the bottom of our rankings, is arguably a better place to do business than five years ago, with the Lourenço administration using its improved ties with the US to revamp key legislation, bringing the country's financial sector into line with international standards and reducing the tax burden on the non-oil sector. In contrast, Venezuela is the worst ranked in our index, and will remain so despite a slight improvement after its painful economic collapse.

As I have stated previously on this forum, Southeast Asia has one of the world's most attractive business environment. Among the ten members of the Association of South‑East Asian Nations (ASEAN), the EIU highlights Thailand as a market that "saw a notable improvement in our business environment index in 2021-22, followed by an acceleration in growth in real GDP per head in 2022-23." The report says Thailand was among the first movers in ASEAN "to give special incentives to invest in electric vehicles and green industries. At the same time, many infrastructure projects were being finished—notably the mass transit expansion in the capital, Bangkok—or under way, including as part of the country's Eastern Economic Corridor megadevelopment project." The report adds that "Thailand has benefited from—and encouraged, with preferential policies—the China+1 trend as investors seek to diversify away from China, often towards India and ASEAN."

Do you find this report helpful in determining which countries to invest in or avoid?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Infrastructure Opportunities in Latin America Are Deep and Wide

A report published by the Economist Intelligence Unit (the EIU) asserts that "Latin America lags most of its regional peers in terms of infrastructure investment. According to the Global Infrastructure Hub (GI Hub, a G20 initiative), Latin America spent 2.2% of its GDP in 2023 on infrastructure, but actual investment needs are estimated at 3.5% of GDP. The difference of 1.3% of GDP represents nearly US$90bn in unmet infrastructure needs, and that gap will only widen if infrastructure investment does not pick up."

The EIU also notes that the shortfall in infrastructure investment is reflected in its "Operational Risk scores, which place Latin America far behind OECD economies in the infrastructure category." For example, "Poor infrastructure weighs on the business environment and growth: the lack of proper transport links raises supply‑chain costs; unreliable electricity distribution disrupts economic activity; and patchy ICT coverage leaves entire regions and their inhabitants isolated."

The report's other key findings include:

• Latin America's infrastructure remains below par by international standards, limiting competitiveness and economic growth. Many of the region's governments are operating under significant fiscal constraints, which means that they will look to the private sector to take a more prominent role in developing much-needed infrastructure in 2024.
• There are myriad opportunities for private investors in all sectors across the region. Most Latin American countries have adopted the public-private partnership (PPP) model, but policies, regulatory frameworks and risks vary widely from country to country. Uncertainty surrounding the policy direction of some governments—particularly in Argentina and Colombia—is another obstacle to attracting investment.
• Even countries with well-established frameworks and experience with PPPs—such as Colombia, Mexico and Panama—will face setbacks. In particular, a lack of consensus between governments, businesses and local communities will stoke social unrest and delay development.
• National governments do not have a monopoly on PPPs: in Brazil, for example, states and municipalities have used PPPs to accelerate their own projects—a trend that will continue in 2024 and beyond.

The EIU explains how the infrastructure gap is holding Latin America back in keeping up with new technologies. "Because of its sizeable infrastructure gap, the well of investment opportunities in Latin America is deep and wide," the report says. "The region's logistics and utilities infrastructure is in dire need of expansion and modernization, but sectors at the forefront of innovation and technology also deserve attention. The rollout of 5G technology, for example, has been slow in some countries, but progress this year—Argentina finally carried out its long-awaited 5G auction in October and Colombia in December—will generate some opportunities in 2024."

The report importantly adds:

Investment in renewable and sustainable energy sources, like solar and wind, is also growing but remains far below Latin America's potential. The region could become a crucial player in the supply chain to power the global green energy shift, owing to its large reserves of critical minerals, wide use of renewable energy sources and water availability. However, it lacks the necessary infrastructure and funding to produce the batteries and green hydrogen that will fuel the world in the decades to come. Investments in these areas are on the radar of governments in Latin America's major economies, but the biggest infrastructure opportunities—in the near term at least—will be in logistics, including road, rail, energy distribution, and ports in the likes of Argentina, Brazil, Colombia and Mexico.

What are your thoughts about the private sector taking a more prominent role in developing Latin America's much-needed infrastructure in 2024?

​Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Global Trends in Commodities and Threats to Watch in 2024

"After three years of extreme volatility, commodities prices are set to broadly stabilize in 2024," according a report published by the Economist Intelligence Unit (the EIU). Moreover, "This apparent stasis may come as a surprise given the many geopolitical headwinds buffeting the global economy at the moment. These range from adverse weather conditions to escalating conflict in the Middle East and rocketing freight rates owing to disrupted shipping routes through the Suez and Panama canals. However, this holding pattern for commodities prices in 2024 belies what will be an eventful year as markets remain volatile in the short term before secular trends, especially those linked to the green transition, come to the fore."

The EIU says El Niño and the Russia-Ukraine war still loom large for soft commodities. With respect to the former, "Prices for food, feedstuffs and beverages (FFB) will rise over the course of 2024, driven primarily by beverages, as El Niño will hit production and therefore prices for coffee and cocoa will increase." The report encouragingly says "Some relief is in sight, with the US National Oceanic and Atmospheric Administration (NOAA) giving a 72% chance that El Niño will come to an end by mid-year. But the damage to this season's harvests will already be done by then, with coffee and cocoa production forecast to fall by 9% and 13% respectively in the 2023/24 crop season."

As for Russia's unjustified invasion of Ukraine, the report points out that "Russia's permanent withdrawal from the Black Sea Grain Initiative poses another upside risk to global food prices, particularly wheat, maize and oilseeds. However, the impact on prices so far has been muted, as Ukraine has managed to export grains and oilseeds via alternative road and rail routes across the country's western borders." The EIU explains how "Ukraine's grain exports initially plummeted following the collapse of the grain deal last summer, but they have recently picked up after Ukraine successfully established a temporary shipping corridor through the western Black Sea with the help of Romania and Bulgaria."

The report importantly says "exports will still not match pre-war levels, which will keep a floor under wheat and maize prices in the short run. At the same time, rice prices will rise in 2024, underpinned by white rice export restrictions in India — by far the largest supplier to the global market."

The EIU is also forecasting oilseeds prices stabilizing in 2024 and as with international soybean stockpiles remaining relatively tight, "prices will remain susceptible to perceived threats to world supplies, either from climate events or further supply-chain disruption." However, the EIU expects "a strong rise in soybean production (owing to a bumper crop in Argentina, which actually benefits from El Niño), which will drive soybean prices downwards over the course of the year. Despite a probable market deficit in the 2023/24 season (October-September), palm oil prices will remain low due to falling prices for rapeseed and sunflowerseed oils, which are also benefiting from Ukraine's temporary export route."

The green transition will be a driver of base metals prices by end-2024, according to the report. The EIU's forecast for their "base metals price index will increase by an average of 3% in 2024, after falling by more than 11% in 2023, as the green transition supports rising demand for critical minerals. Even for metals such as nickel that will register significant year-on-year declines in 2024, prices are poised to rise from their end-2023 levels. Despite a strong supply response from producers, which will lead to a market in oversupply in 2024, low reserves will make nickel susceptible to supply-chain disruption." Furthermore, "London Metal Exchange (LME) warehouse stockpiles remain low by historical standards and the availability of class 1 nickel will be limited by end-users deciding to avoid using Russian supply."

The EIU is predicting energy prices, excluding crude oil, will trend downwards in 2024. In the comping year, "prices of hydrocarbons will largely trend in the opposite direction than those of most industrial raw materials and soft commodities. We expect average European natural gas prices to fall by one-fifth in 2024, after plummeting by more than two-thirds in 2023, largely due to demand destruction, particularly in industry. However, there will be periodic spikes owing to market anxiety about the security of global supply chains, amid rising geopolitical tensions stoked by the Israel-Hamas war. Nevertheless, prices will remain historically high, limiting any significant recovery in industrial demand."

In addition, "Strong European demand for liquefied natural gas (LNG) will push up US prices from their current low base and limit the fall in LNG prices. Coal prices will continue to trend downwards as long as gas storage levels in Europe remain seasonally high and LNG continues flowing to the continent, limiting the squeeze on gas supplies in Europe."

As for crude oil prices, "The US has ramped up production and exports, and the global market has moved back into surplus (production exceeding demand). However, as Saudi Arabia is unlikely to increase output markedly this year, and with other OPEC members also implementing voluntary cuts, the market will periodically return to deficit, which will limit the downside to oil price forecasts. Global oil demand will also put a floor under prices and is set to reach record highs in 2024 and in subsequent years as consumption in the developing world continues to increase." What is more, "Heightened geopolitical risks tied to the Israel-Hamas war still threaten to cause prices to soar again. Although we expect crude oil prices to remain volatile, they should mostly trade at about US$80/barrel, essentially where they began the year."

What trends in commodities and threats are you watching in the next 12 months?

​Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

How Geopolitical Tensions, New Technologies, and Environmental Threats Could Upset the Economic Outlook for 2024

Though the Economist Intelligence Unit (EIU) expects modest global growth in 2024, continued monetary tightening, supply chain disruptions and geopolitical conflict could weigh heavily on the global economy next year. In a report that explores how geopolitical tensions, the advent of new technologies and persistent environmental threats could upset the outlook in the coming year, the EIU explains that its "operational risk scenarios evaluate the events that could have a severe impact on its core economic and geopolitical forecasts, challenging the operations of businesses worldwide." For example, "In 2023 resilience among consumers and a gradual fall in inflation reassured uneasy investors and supported modest global growth." The EIU expects "stable, but unspectacular, global growth to continue into 2024 as economic uncertainty recedes and major central banks begin to lower policy rates in the second half of the year. The UK-based organization's report "explores how geopolitical tensions, the advent of new technologies and persistent environmental threats could upset the outlook for 2024."

Below are ten risk scenarios that could reshape the global economy in 2024:

1. Monetary policy tightening extends deep into 2024, leading to a global recession and financial volatility (moderate probability; high impact)
2. A green technology subsidy race becomes a global trade war (moderate probability; high impact)
3. Extreme weather events caused by climate change disrupt global supply chains (high probability; moderate impact)
4. Industrial action spreads, disrupting global productivity (high probability; moderate impact)
5. China moves to annex Taiwan, forcing a sudden global decoupling (low probability; very high impact)
6. A change in the US administration leads to abrupt foreign policy shifts, straining alliances (moderate probability; moderate impact)
7. Stimulus policy failures in China lead to increased state controls and diminished growth prospects (low probability; high impact)
8. The Israel-Hamas war escalates into a regional conflict (very low probability; high impact)
9. Artificial intelligence disrupts elections and undermines trust in political institutions (moderate probability; low impact)
10. The Ukraine-Russia war spirals into a global conflict (very low probability; very high impact)

While business leaders should be mindful of the ten risk scenarios, there are three that I am watching closely. As someone who follows the green technology sector, I have concerns about how a subsidy race could turn into a global trade war. As the EIU explains: "Western economies are rolling out generous incentives for businesses to invest in clean energy technologies by boosting domestic industrial capacity and enabling greater competition with China, which is the leader in the production of many green technologies. These initiatives also aim to accelerate countries’ transition towards achieving net-zero greenhouse gas emissions, but most incentives include strict sourcing requirements for components (notably in the US). These requirements have already spurred tensions between the EU and the US, and will probably raise the cost of inputs and subsequently the green technologies themselves."

The report importantly adds that should "relations with China experience a severe downturn (including in relation to strengthening China-Russia ties or deepening concerns over China's state-driven industrial policy), Western economies could increase existing tariffs on Chinese imports or accelerate decisions on pending investigations into anti-dumping and state subsidy charges, further fueling price growth. China would retaliate, possibly by blocking exports of raw materials that are critical to the green transition agenda such as rare earths, making decarbonization efforts more expensive for developed markets. These costs would force economies to consider returning to carbon-based technologies, limit support from Western countries to fund emerging markets' energy transition and delay timelines for achieving net-zero emissions."

Regarding the spread of industrial action that will lead to the disruption of global productivity, the EIU says: "High global commodity prices, continued supply-chain disruptions, high food prices and continued currency weakness against the US dollar for some countries will continue to fuel discontent in 2024-25." What is more, "Wages have not risen as quickly as inflation in most countries, making it harder for poorer households to purchase basic staples. This could spark social unrest, expanding the small-scale protests and industrial action already seen in Europe, the US, South Korea and Argentina. In an extreme scenario, protests could push workers in major economies and who are employed by large manufacturers to co-ordinate large-scale strikes demanding salary increases that match inflation. Such movements, like those that have affected the automotive industry in the US and key services in the UK (healthcare, ports and railways), could paralyze entire industries or public services for an extended period and spill over to other sectors or countries, weighing on global growth."

As for artificial intelligence disrupting elections and undermining trust in political institutions, the EIU points out that "Global firms and governments have rapidly begun to test and integrate generative artificial intelligence (AI) into existing platforms and processes." Furthermore, the EIU believes "AI will augment (rather than replace) human capabilities, presenting an opportunity for firms to improve productivity. However, the widespread adoption of AI and its use in social media will raise the risk of a spread in disinformation campaigns via text, imagery, audio and video in the coming years. Regulation across different geographies is coming, but malicious actors will still look to implement wide-ranging programs aimed at fueling existing skepticism of some citizens towards governments." The report crucially notes that "This could potentially shift the result of major elections scheduled for 2024—including for the EU parliament, and in the US, the UK, India and Taiwan—and more broadly erode voters' trust in political systems."

The world is facing geopolitical tensions, the advent of new technologies, and persistent environmental threats that could upset the economic outlook for the coming year. Which of the global risk scenarios will you be watching?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Growth Prospects, Risks and Trends in Six Critical Sectors in 2024

The past few years have been turbulent for most companies as the pandemic, soaring commodity prices, high interest rates and political disruption resulted in profits for many and bankruptcy for some. A report published by the Economist Intelligence Unit (EIU) asks: Will conditions stabilize in 2024?

EIU's report provides growth prospects, risks and trends facing six critical sectors in the coming year, as inflation eases but geopolitical tensions remain high. The report argues that the biggest challenge facing businesses next year will be climate change and looks at how experimentation with artificial intelligence will give way to rapid adoption, changing corporate strategies and the nature of work.

Key findings include:

• Climate change will drive demand in sectors relating to mitigation and adaptation. Insurers, companies and governments will struggle to price in the increasing risks.
• EU and US regulations on environmental, social and governance (ESG) reporting will push companies to scrutinize their operations and supply chains. However, skepticism about ESG will harden in the US ahead of November’s presidential elections.
• Corporate concerns over taxation will increase as the OECD introduces its global minimum tax rate and individual governments try to reduce budget deficits and national debt levels.
• Geopolitical tensions and wars will complicate government and corporate responses to all of the above. Investment in supply chains, particularly for technology and the energy transition, will adapt to minimize political risk.
• Generative artificial intelligence will disrupt a few sectors, but most companies will find ways to use AI to increase productivity.

The report also provides key global forecasts for each sector covered:

• Automotive: The automotive industry will face another subdued year in 2024, weighed down by slow consumer spending, high interest rates and disruption to supply chains due to geopolitical tensions. The only bright spot will be the electric vehicles market, with sales expected to soar by 21% to 14.9 million unit as governments and consumers try to mitigate the worsening effects of climate change. The report notes that established carmakers will have to fight hard to hold off competition from China.
• Consumer goods and retail: A slowdown in inflation will bolster retail volume growth by 6.7% in US dollar terms and 2% in volume terms in 2024. However, reduced savings and high food prices, worsened by the effects of climate change, will act as dampeners. The EIU also points out that high food prices will continue to cause problems in Asia.
• Energy: Global energy consumption will grow by 1.8% in 2024, largely driven by strong demand in Asia. Despite still-high prices and unsolved supply chain disruptions, demand for fossil fuels will reach record levels, but demand for renewable energy will rise by 11%.
• Finance: High interest rates will determine the success or failure of almost every part of the financial services sector in 2024. Though painful for borrowers, banks will enjoy strong net interest margins margins and revenue flows until margins begin to narrow mildly in late 2024. Property firms and funds, however, will suffer.
• Healthcare: Healthcare spending will rise by 2% in real US-dollar terms, following two years of decline, as inflation eases. However, resources will remain constrained as governments try to bring down fiscal deficits and public debt levels.
• Telecoms and technology: Geopolitics will continue to affect technology in 2024. The tech battle between the US and China will persist in areas including artificial intelligence (AI), chips and quantum technologies. AI will continue to develop, particularly generative AI, but will encounter challenges from new regulations in the EU and other major jurisdictions, as well as complications from US-China tensions.

I appreciate how the annual industry outlook provides businesses with foresight of the critical global trends and threats that will affect their sector 2024. Which trends and threats are you watching in the coming year?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Modest Global Growth and Challenges Ahead in 2023, Says EIU

According to a report about the global economic outlook for 2023 published by the Economist Intelligence Unit (EIU), the global economy is proving resilient amid severe economic headwinds. However, the UK-based organization, says global gross domestic product (GDP) growth will slow sharply in this year with global inflation remaining stubbornly high. Moreover, the report notes that risks abound for the global economy including fears about global food supplies.

Additional key findings from the report include:

• The EIU expects global economic growth to slow sharply in 2023, reflecting persistent headwinds stemming from the ripple effects of the war in Ukraine, as well as high inflation and rising interest rates.
• The EIU's forecast for global growth stands at 2% (up from 1.9% last month). This upward revision reflects an improvement to our US growth outlook, which the EIU now forecasts at 0.7% for 2023 (up from 0.3% previously).
• The EIU forecasts that the Chinese economy will grow by 5.7% in 2023. The recovery will be consumer-led as the exit from the country's zero-covid policy unleashes pent-up demand for goods and services (including outbound tourism).
• The euro zone has avoided recession in the winter of 2022/23, owing to lower than expected energy demand due to mild temperatures. However, high inflation continues to weigh on spending—the EIU forecasts GDP growth of just 0.7% in the bloc.
• The EIU expects a moderate global recovery in 2024, with real GDP growth of 2.5%. However, growth in OECD economies will remain subdued, at a forecast 1.5%. By contrast, the EIU forecasts growth of 4.1% in non-OECD economies.
• Inflation was a major driver of our forecasts in 2022, and this will continue to be the case in 2023. The EIU expects major central banks to end their tightening cycles by mid-year as inflation slows, but rates will remain high in 2023-24.
• Despite sky-high interest rates, global inflation will subside only gradually, from an estimated 9.3% in 2022 to 6.7% in 2023 and 4.3% in 2024. Prices will remain high in level terms, even after inflation subsides, fueling the risk of social unrest.
• Oil prices will remain high in 2023, owing to continued disruption from the war in Ukraine and rising Chinese demand. The EIU expects oil (dated Brent Blend) to trade above US$80/barrel until 2025.

I appreciate how this report provides businesses with foresight of the critical global trends and threats that will shape interest rates, inflation and economic activity in the year ahead. What do you think about the report's findings?

​Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Challenges, Opportunities and Trends to Watch in Seven Sectors in 2023

"The continuing pandemic, the war in Ukraine and high inflation have forced many companies to scale back their forecasts" in 2022, the Economist Intelligence Unit (EIU) notes. Will 2023 will be any better?

The 12th edition of the EIU's annual report forecasts growth and key risks in seven business sectors for 2023, as the war in Ukraine pushes up commodity prices and the cost of living. The report argues that the war has disrupted the recovery from the covid-19 pandemic, and businesses now face increased risks as economies slow or tip into recession, particularly in Europe.

The EIU's report also provides key global forecasts for each of the seven industries:

• Global sales of new vehicles will be flat in 2023, but sales of electric vehicles will rise by 25% to 10.7m units.
• In 2023 retail growth volumes will be respectable at 4.9% in US-dollar terms, which will mainly reflect high inflation. In real terms, global sales will slow or fall in most markets.
• Global energy consumption will rise by just 1.3% as the global economy slows. The energy crisis will force some countries to increase their use of coal or rethink plans to phase out nuclear power.
• Weakening economic output and rising interest rates will lead to more difficult conditions for banks, insurers and fund managers. Formerly fast-growing fintech companies will be hit by the capital-market crunch.
• Global healthcare spending will rise by 4.9% year on year in US-dollar terms, which will mask falling investment in real terms, as countries struggle to cope with continued demand.
• The metaverse will not become a mass-market in 2023, but this will not stop heavy investment into this technology. The drive to standardization and the battle with web3 will be at the forefront.
• International tourism arrivals will rise by 30% as China slowly loosens its covid-19 restrictions. This will follow 60% growth in 2022, but will still leave total arrivals below 2019 levels.

The EIU also presents the following key forecasts for each industry:

Automotive outlook 2023: Bright spots amid stalling growth

• 
  The automotive industry will remain vulnerable to global headwinds in 2023 including the energy crisis, slower global demand and continued supply-chain problems.
• Global new-vehicles sales will remain flat in 2023: new-car sales will rise by 0.9% and new commercial vehicle (CV) sales will fall by 1.3%.
• Sales of electric vehicles (EVs) will be the only bright spot, growing by 25%, but governments will restructure their incentive schemes.
• Governments' focus will turn to charging networks, which are inadequate to meet the expanding EV fleet.
• Autonomous vehicles will take a leap forward, as UN regulators lift their speed limit.

Consumer goods and retail outlook 2023: Retailers respond to pricing pressures

• 
  Inflation will push up global retail sales by a robust 5% in US-dollar terms in 2023, but the lower volume of sales and surging costs will weaken retailers' profits.
• The rollout of automation technologies will offer opportunities to limit wage growth, which means that retail employment is unlikely to return to 2019 levels.
• Online sales growth will slow, but the online share of retail will edge up to about 14% of global retail sales.
• Inflation-wary consumers will prefer to shop at discount stores, helping these retailers to increase their market shares.
• The economic slowdown in China, caused in part by its zero-covid strategy, will mean fresh challenges for global luxury brands already affected by the loss of Chinese tourists.

Energy outlook 2023: Surviving the energy crisis

• 
  Global energy consumption will grow by only 1.3% in 2023 amid a slowing economy.
• Despite decarbonization targets, coal consumption will grow marginally to compensate for gaps in gas supplies.
• More extreme weather events will force many countries to fall back on fossil fuels, delaying the energy transition.
• Renewable energy consumption will surge by about 11%, with Asia leading the way, but investment will weaken.
• The energy crisis will prompt some governments to backtrack on efforts to phase out the use of nuclear power.

Finance outlook 2023: A new test for financial stability

• 
  Weakening economic output and rising interest rates will lead to more difficult conditions for banks, insurers and fund managers in 2023 than in the past two years.
• The impact will be particularly acute in North America and Europe, where governments will offer support. The environment will be tough in Asia as well, although policy rates will rise by less.
• Heavily indebted developing countries will find it harder to refinance foreign debt, driving some to default or require rescues to avoid it. However, the International Monetary Fund will continue its lenient treatment of economies requiring its financing programs.
• The current capital-market crunch will hobble a wide variety of loss-making fintech challengers that sought to outflank incumbents in banking, payments and other activities.

Healthcare outlook 2023: The aftermath of the pandemic

• 
  Healthcare spending will fall in 2023 in real terms, given high inflation and slow economic growth, forcing difficult decisions on how to provide care.
• Digitalization of the healthcare system will continue, but the use of health data will come under stricter regulation in the US, Europe and China.
• Patent cliffs for key drugs and measures to control pharmaceutical pricing in the US, India and elsewhere will force some major pharma companies to spur growth through deals.
• Supply-chain disruptions will continue to push up drugmakers' costs, despite investment in more localized pharmaceutical production.

Technology and telecoms outlook 2023: The battle for digital supremacy

• 
  The metaverse will not become mass-market in 2023, but this will not stop heavy investment in the technology. The drive to standardization and the battle with web3 will be at the forefront.
• Artificial intelligence (AI) will continue to develop, after several breakthroughs in 2022, but will encounter challenges from new regulations in key jurisdictions.
• Semiconductors will continue to be a geopolitical tool between the US and China, involving many other countries. Some companies producing the most advanced products and equipment will benefit.
• Asian telecommunications companies will continue to look for consolidation in 2023. Mobile markets with four or more mobile network operators, such as Sri Lanka, Japan and India, are the most likely to secure deals.

Tourism outlook 2023: Turbulence in the travel industry

• 
  Global tourism arrivals will rise by 30% in 2023, following 60% growth in 2022, but they will still not return to pre-pandemic levels.
• The economic downturn, sanctions on Russia and, above all, China’s zero-covid strategy will be among the factors weighing on the industry.
• Hotels, restaurants and airports will struggle to cope with labor shortages, wage demands, and high food and energy prices.
• Even so, international airlines are expected to return to profitability, benefiting from continued pent-up demand.
• The impact of climate change on the industry will become more apparent, with high temperatures, water shortages and floods forcing tourism destinations to take action.

Useful for companies developing their global business strategy for the coming year, the report presents the following macroeconomic key points:

• The war in Ukraine, combined with lockdowns in China, has exacerbated supply-chain disruptions and pushed up global inflation, forcing EIU to downgrade its forecasts for economic growth in 2023.
• Many governments, particularly in Europe, will be forced to scale back investment in public services, including healthcare, in order to protect households and businesses from the effects of higher prices.
• While some businesses (particularly in commodities sectors) will benefit from high prices, many will be hit by weak demand and high input costs, particularly for energy.
• Profitability will be squeezed, while corporate investment will slow amid rising interest rates.
• However, some companies (notably in pharmaceuticals, technology and retailing) will take advantage of lower stock-market valuations, bankruptcies and government incentives to snap up strategic assets and position themselves for an eventual upturn.

"Amid all this gloom," the EIU encouragingly says "there will be areas of opportunity." Taking the EV market as an example, "online retail sales and tourism will continue to deliver strong growth, particularly in Asia and the Middle East," the report notes. "Innovations—from the metaverse to automated vehicles and data analytics (notably in healthcare)—will attract investment, with some companies also seizing on chances offered by volatile financial markets." I concur that "It will not be an easy year, but it could be a transformative one."

Lastly, The Economist produced a video that looks into which stories may be worth watching in the coming year.

What will you be watching in 2023?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Risk Scenarios That Could Reshape the Global Economy in 2023

The Economist Intelligence Unit (EIU) produces an annual quantitative and qualitative assessment of economic, political and regulatory risks that help readers evaluate potential shifts in a country's operating environment. As this year's report explains, "In 2022 the global repercussions of Russia's invasion of Ukraine shifted global concerns away from coronavirus-related health issues and towards growing political, security and macroeconomic risks." The UK-based organization expects "that ripple effects from the war in Ukraine, global monetary tightening and an economic slowdown in China will weigh on the economy in 2023, with global growth slowing to only 1.6%." The EIU explains that its "white paper explores some of the risks that could lead to even slower growth, or even, trigger a global recession."

Below are ten risk scenarios that could reshape the global economy in 2023:

1. Cold winter exacerbates Europe's energy crisis (high probability; very high impact)
2. Extreme weather adds to commodity price spikes, fueling global food insecurity (high probability; high impact)
3. Direct conflict erupts between China and Taiwan, forcing US to intervene (moderate probability; very high impact)
4. High global inflation fuels social unrest (very high probability; moderate impact)
5. New variant of coronavirus, or another infectious disease, sends global economy back into recession (moderate probability; very high impact)
6. Inter-state cyberwar cripples state infrastructure in major economies (moderate probability; very high impact)
7. Further deterioration in West-China ties forces full decoupling of global economy (moderate probability; high impact)
8. Aggressive monetary tightening leads to global recession (moderate probability; moderate impact)
9. China's zero-covid policy leads to severe recession (low probability; high impact)
10. Russia-Ukraine conflict turns into global war (very low probability; very high impact)

While I agree with the high placing of cold winter exacerbating Europe's energy crisis, I am more concerned with the risk of extreme weather adding to commodity price spikes which will result in exasperating global food insecurity. "Climate change models point to an increased frequency of extreme weather events," explains the EIU. "So far these have been sporadic and in different parts of the world, but they could start to happen more synchronously and for prolonged periods." Moreover, "Severe droughts and heatwaves in Europe, China, India and the US in 2022 are contributing to rising prices of some foodstuffs. In addition, the war between Russia and Ukraine (two of the world’s largest agricultural exporters) has led to severe price spikes and risks creating global shortages of grains and fertilizers (which are crucial for harvests) in 2023." The report worryingly warns that "The world could face a prolonged period of crop shortages and skyrocketing prices, raising the risk of food insecurity (or even famine).

Just as high food prices was a contributing factor that a series of anti-government protests, uprisings and armed rebellions that spread across much of the Arab world in the early 2010s, global food prices are again high could lead to social unrest. As the report notes, "Persistent inflationary pressures, caused by supply-chain disruptions and Russia's invasion of Ukraine, are pushing up global inflation, which is at its highest level since the 1990s. If inflation rises much higher than wage increases, making it hard for poorer households to purchase basic staples, it could spark social unrest." The report adds that "In an extreme scenario, protests could push workers in major economies and employed by large manufacturers to coordinate large-scale strikes demanding higher salaries that match inflation. Such movements, similar to those that have affected critical services in the UK (ports, postal services, barristers and railways), could paralyze entire industries and spill over to other sectors or countries, weighing on global growth.

Finally, my colleagues and I are closely watching the further deterioration in West-China ties that may result in the full decoupling of the global economy. "Western democracies, notably the US and the EU, are concerned about China's support to Russia following the invasion of Ukraine," the report explains. "In parallel, China is concerned about US-Taiwan relations and efforts by the US to convince other democracies to pressure it using restrictions on trade, technology and finance." Moreover, "The EU has also taken an increasingly confrontational stance towards China's human rights abuses in Xinjiang, unequal treatment of EU and Chinese firms, and its subsidy-led industrial model." The report adds that "In an extreme scenario, China could initiate military maneuvers in the South China Sea (most likely in Taiwan), exacerbating tensions and pushing the West to unite in imposing sweeping trade and investment restrictions on China. This would force some markets (and companies) to choose sides." China could, in retaliation, "block exports of raw materials and goods that are crucial to Western economies, such as rare earths. This would have disastrous economic effects and force companies to operate two supply chains while fearing operational disruptions."

Which risk scenarios do you think will affect your business? What strategies are you implementing to make your company resilient to those risks?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

EIU's 'China Emerging City Rankings' Aims to Uncover Opportunities Amid Uncertainty

As a strategic advisor to business executives, I am often asked which cities in China provide the best opportunities for corporate expansion. To provide an informed opinion, I utilize information provided by the Economist Intelligence Unit (EIU) such as the EIU's China Emerging City Rankings, which identifies urban centers with the greatest growth potential and includes parameters that will guide development and influence companies' long-term strategies.

Most people familiar with the China market events will concur with the EIU's 2022 version of its China Emerging City Rankings that "Chinese cities have faced extraordinary challenges and mounting uncertainty since late 2021." The report adds: "The debt crisis facing China's domestic property developers has fueled concerns over the health of not only local property markets, but also the fiscal position of local governments. A nationwide energy crisis has also forced authorities to strike a delicate balance between achieving carbon neutrality and sustaining economic growth. The spread of the highly-contagious Omicron variant of covid-19 has tested the efficacy of China's 'dynamic zero-covid' doctrine, as prolonged lockdowns across dozens of cities inflict massive shocks to local economic growth."

Aiming to address which cities have the greatest growth potential in the overall ranking, which cities can best navigate China's property woes, and which cities have higher economic resilience to covid-19 outbreaks, the report's key findings include:

• The urban centers with strong growth potential are dominated by cities in eastern China, in addition to two inland cities, namely Hefei and Chengdu. The EIU see these regions as best placed to attain sustainable growth amidst economic uncertainty.
• Thanks to the strong presence of high-value manufacturing or service sectors, cities in the Greater Bay Area (GBA) and Yangtze River Delta (YRD) will continue to enjoy steady population inflows and relatively healthy fiscal structures. This will help them navigate the fallout of China's property sector troubles.
• The effects of citywide lockdowns that shocked China's economy in April-June 2022 are largely excluded from the EIU's emerging city index. Nevertheless, the UK-based organization created an index to assess a city's economic resilience in the face of covid-19, which finds that small population size and low density contributes positively.

Diving deeper into which cities have the greatest growth potential in the EIU's overall ranking, Hangzhou (Zhejiang) topped the emerging city rankings in 2022 following by other large cities on China's east coast (see map below). "With strong population inflows and industrial bases," the EIU explains that "these cities will play important roles in national strategies to move China up along global value chains, including via processes that include technological upgrading and a (longer-term) emphasis on decarbonization. In addition to coastal cities, some provincial capitals also feature within our top 10 ranking, such as Hefei (Anhui) and Chengdu (Sichuan). These outcomes reflect the success of these cities in developing their 'strategic emerging industries,' which have become increasingly important drivers of future industrial growth."

Regarding China's property woes, the EIU points out that "The debt crisis facing China's domestic property developers, has fueled concerns over the health of not only local property developers and banks, but also the fiscal position of local governments. These events have caused property prices across Chinese cities to plunge in recent months. This combined with the broader pandemic-induced economic slowdown have also prompted local mortgage boycotts, exacerbating property sector strains."

As for which cities can best navigate China's property woes, "Recent growth patterns in average land transaction prices, which could foreshadow housing price trends in the near future, illustrate that Hangzhou (Zhejiang) and Guangzhou (Guangdong) stand out in attracting population inflows–should sustain future local property values, even as authorities clamp down on speculative behavior."

For those businesses operating in China, the EIU's report serves as a useful tool for uncovering opportunities amid uncertainty.

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Asia Predicted to Be the Fastest-Growing Region for Electricity Consumption During the Next Decade

According to a report published by the Economist Intelligence Unit (EIU), "Asia's energy transition and decarbonization strategies are determined by two factors: Asia is forecast to be the region with the fastest growth in electricity consumption over our ten-year forecast period (2022-31); and it is the most reliant region on coal for its power generation." What is more, "The combination of these two factors makes it challenging for governments to decarbonize their power sector while satisfying increasing demand for electricity, and without compromising energy security."

The EIU's report further explains that "[t]his dilemma explains why, despite being the world's biggest market for renewable energy investment, Asia's dependency on coal is far from waning." In fact countries such as "China, India and Indonesia, among other countries in the region, are still approving and building new coal-fired power plants. Furthermore, governments' bets on coal have only increased since Russia invaded Ukraine earlier this year, intensifying an already acute global crunch in gas supplies."

However, the EIU expects "renewables to increase their share in power generation over the next ten years. In China, the share of energy from non-hydro renewables in total generated electricity will rise from 15% currently to about 26% in 2031, while in India this share will grow from 11% to 21%. In Japan and South Korea, renewables will also grow strongly, from 15% to 23% and from 7.5% to 19.5% respectively."

Below are the report's key findings:

• The global energy crisis has forced Asian governments to balance the need for energy security against the need to minimize climate change. This will undermine progress at the COP-27 climate talks in November.
• Asia will be the fastest-growing region for electricity consumption over EIU's ten-year forecast period, but is also the region that relies most heavily on coal for its power generation. Decarbonization will be a major challenge.
• Asia will continue to be the world's biggest market for renewable energy investment, with the lion’s share going to China, India, Japan and South Korea. Solar energy will get more capacity additions until 2031, when wind power capacity will accelerate.
• Many governments in the region are now looking at nuclear energy as a way to become less reliant on imported energy, but it will not help with the short-term energy crunch.
• Given these dynamics, developed countries will be under pressure to ramp up financing for Asia's energy transition at COP27, despite the weakness of the global economy.

"The varying economic and climatic fundamentals of Asian countries will govern the positions that they take on key issues at the upcoming COP27, the UN climate change conference to be held in Egypt in November 2022," the EIU notes. "Although most major Asian countries have submitted net-zero pledges, their Nationally Determined Contributions (NDCs) still lack detailed plans on how they intend to reach their emission-reduction targets."

The UK-based organization concludes its report with the following:

The negotiations at the COP27 are likely to be contentious, and it is difficult to foresee any significant progress. Owing to a volatile economic and geopolitical environment, developing Asian countries such as India and Indonesia will find it ever more difficult to secure meaningful commitments from the developed world to finance their energy transition. The lack of sufficient mitigation finance, a monetary tightening cycle in major Western economies and high material costs for renewable projects will make energy transition costlier. This will result in countries showing greater resistance to wean themselves off dirty fuels such as coal, and could weaken the climate policy stance taken by developing Asia at the conference. Furthermore, recent extreme weather events in Europe and the US are likely to shift domestic public sentiment in those countries towards channeling climate adaptation funds towards domestic needs before committing to assist other countries. This will be detrimental to negotiations on providing financial support for adaptation to climate change, which is a major cause for concern for many developing Asian countries.

This report provides a good summary on the trajectory of Asia's energy mix over the EIU's ten-year forecast period. What are the implications of Asia being the fastest-growing region for electricity consumption during the next decade? How do you think the region will overcome challenges of decarbonization to meet the increasing demand for electricity?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.