S&P Warns: Geopolitical Challenges to Overwhelm Global Markets in 2023
WORLD ─ S&P Global Market Intelligence, the renowned financial information entity arm of S&P Global, Inc. (NYSE: SPGI), has recently published a comprehensive economic report entitled “2023 Economics & Country Risk Outlook” as part of its overarching 2023 Outlook Report Series.
This comes as major global financial markets, particularly equities, are starting to reverse their gains from their bullish streak in the second half of October. In fact, since the 1st of November (Tuesday), the S&P 500 index has lost almost 5 percent during Thursday’s trading hours.
Notably, the report highlighted how existing geopolitical challenges could have an immense transformative impact on the economic environment, including financial markets that most governments are not giving enough emphasis to and, in many instances, downplaying altogether.
2023’s Top Three Geopolitical Challenges
First of all, the report highlighted the more extended consequences of the Russia-Ukraine conflict. In particular, Ukraine’s ongoing fall counteroffensive to recover the territories it lost to Russia since the start of the renewed conflict in February gives a premise of a much longer clash that would most likely continue deep into 2023.
Also, with vanishing politically viable options available for Russian President Vladimir Putin, the prospect of a deadlier conflict due to more destructive weapons, as well as the Kremlin’s mass mobilization, could result in a never been seen geopolitical risk.
Second, as we welcome the new year, the energy crisis as a result of this aforementioned conflict could be much more severe than what many governments anticipates. As an example, the European winter would require more energy consumption that, unfortunately, no firm energy supply-chain channels have been established. In addition, further international sanctions are likely to be imposed due to a possible escalation, which could inadvertently affect other commodities’ prices.
Thus, economic and energy security concerns will compel short-term mitigation strategies globally, increasing political, fiscal, and social challenges for many economies, especially European countries scheduled to hold their national elections in 2023, such as Greece, Poland, Estonia, and Finland. This will force countries to compromise their long-term recovery with short-term solutions that could end up delaying socioeconomic progress.
Finally, the ongoing contractionary economic environment is expected to result in a further economic decline for most economies, putting vulnerable regions such as the European continent at a massive risk of full-pledged recession. Worst, in many developing economies, the risk of a long-lasting crisis with disastrous implications (such as bankruptcy and nationwide instability) is undeniably elevated.
The Grim Outlook for Next Year
For these reasons, the outlook for next year is, without a doubt, dire and desperate. “Looking ahead to 2023, European energy security will remain a source of near-term risk, clouding the economic outlook,” said Dr. Lindsay Newman, Head of Geopolitical Thought Leadership at S&P Global Market Intelligence. “This dynamic reflects a broader trend we are watching of operational, political, and security risks underpinning the economic landscape for 2023.”
Meanwhile, Katherine Smith, also from S&P Global Market Intelligence, emphasized how these numerous geopolitical pieces are starting to create the big picture for the global markets next year.
“The new report highlighted that entering 2022, the question on many minds was the pace of the pandemic recovery. However, Russia’s invasion of Ukraine earlier this year dashed hopes of a smooth recovery.” Smith continued, “… the conflict in Ukraine hastened a confrontation with a host of geopolitical risks and transformed the near-term security and economic picture.”
