Risk analysis and solution

2024-10-22 11:37:00

Geopolitical upheavals, particularly the trade war between the United States and China, sanctions against Russia, and structural problems in the European Union, are creating major economic challenges on a global scale. These events influence markets, create tensions on supply chains and increase uncertainty among investors. The objective of this article is to analyze, using recent statistics and economic data, the impact of these crises on the global economy and to explain why gold is once again becoming one of the commodities the most sought after.

1. The US-China trade war: a burden on the global economy

Since 2018, the United States and China, the world’s two largest economies, have been engaged in a trade war that has caused massive disruptions to international trade. According to a World Bank study (2023), tariffs imposed by the two countries cost around 1.4% of global growth. Global supply chains, which had intensified with globalization, have suffered a severe blow. This has resulted in price increases for consumers, reduced profitability for some companies, and instability in financial markets.

The hardest hit sectors include electronics, where reliance on China for semiconductors and other components has exposed critical vulnerabilities. The World Trade Organization has predicted that global trade growth will slow to 1.7% in 2023, compared to a historical average of 3.5%, mainly due to tensions between these two economic giants.

2. Sanctions against Russia: consequences beyond its borders

Russia’s invasion of Ukraine in 2022 triggered a series of unprecedented economic sanctions, affecting not only the Russian economy, but also the global economy. Europe’s dependence on Russian fossil fuels has caused a major energy crisis. According to Eurostatin 2022, almost 40% of the natural gas used in the EU came from Russia, and this sudden interruption of supply caused a very significant increase in energy prices and put Germany in a situation of stagnation.

The repercussions on inflation are significant: according to European Central Bankinflation in the euro zone reached 10.6% in 2022, well above the 2% target. This surge in energy prices has also affected manufacturing industries and food supply chains, threatening to prolong stagflation – a period of low growth combined with high inflation.

3. The structural challenges of the European Union: the Draghi report

Former European Central Bank President Mario Draghi published a report on the challenges facing the European Unionhighlighting problems of competitiveness, cohesion and productivity. He stresses that the EU risks losing its competitive advantage against countries like the United States and China if it does not quickly tackle structural problems such as over-regulation, aging populations, and dependency. excessive to foreign technologies.

According to the report, productivity in the euro zone has increased by only 0.5% on average since 2015, compared to growth of 1.8% for the United States. Additionally, political fragmentation within the EU, worsened by Brexit and internal tensions over issues such as immigration, has contributed to slow economic decision-making, making it difficult to implement reforms needed to stimulate competitiveness.

4. Gold, as a safe haven in times of uncertainty, has been breaking records since Friday, surpassing the $2,700 mark and will continue to rise!

At the time of writing, it is at $2735.9. Faced with these geopolitical and economic uncertainties, gold continues to play a role as a safe haven. In 2023, the price of gold increased by 8% as a result of economic sanctions and trade tensions. Gold, as an asset uncorrelated from stock and bond markets, is particularly popular during periods of high inflation or geopolitical uncertainty, as is the case currently.

Institutional and individual investors view gold as a hedge against financial market volatility and systemic risks. The World Gold Council reported that central bank gold purchases hit record levels in 2023, notably in Asia, where China and India are boosting their reserves to guard against global disruption. With a negative correlation between gold and the US dollar, gold is a key component for diversifying portfolios in an uncertain economic environment.

Conclusion

Global geopolitical instability and economic sanctions are profoundly changing economic balances. The US-China trade war, sanctions against Russia and structural challenges in the European Union pose substantial risks to global growth. In this context, investors must rethink their strategy, focusing on assets resistant to economic shocks, such as gold, to mitigate risks and protect their wealth against future turbulence.

Sources :

Inflation and consumer prices

Photo credit: [e-mail] Depositphotos

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### Interview: The Intersection of Geopolitics and Economics

**Host:**‌ Welcome to ‌our special segment on ​global economics‌ and geopolitics. Today, we’re joined by ‌Dr. Emily Thompson, a leading economist specializing in international trade and​ financial markets. Thank ​you for ‌being⁤ here, Dr. Thompson.

**Dr. Thompson:** Thank⁤ you for having me. It’s a ‌pleasure ‌to ⁣be here.

**Host:** Let’s dive right⁤ in. The ongoing trade war between the United States and China has ⁤been a significant factor influencing the global economy since 2018. How has this trade conflict shaped market dynamics?

**Dr. Thompson:**‌ The ‍US-China trade war‌ has⁢ indeed had far-reaching impacts. According to⁢ a recent World Bank​ study, the tariffs imposed have cost⁤ about 1.4%​ of global growth.​ It’s ​disrupted supply‌ chains, particularly in sectors like electronics, ⁢and has​ caused a spike in costs for consumers due⁢ to increased⁤ prices.​ We’re starting to see ‌a ‌more fragmented global trade environment, which poses challenges for both established and emerging markets.

**Host:** That’s insightful. Moving to Europe, the sanctions against Russia after its invasion of Ukraine have intricately impacted not only Russia but also the EU and ‍beyond. Can you elaborate on the repercussions?

**Dr. Thompson:** Absolutely. The EU’s reliance on Russian ⁢gas made the situation⁤ particularly precarious. ‍In 2022, nearly 40% of its ⁣natural gas ‌supply⁤ came from‍ Russia,⁢ leading to a ‍significant energy crisis ⁣when ⁢the supply was cut. This spike ⁢in energy prices ⁢drove eurozone inflation up to 10.6%, drastically affecting both industry‍ and consumer confidence. The impact of‌ those sanctions continues⁣ to ripple ⁣through the global economy.

**Host:** ​Now, let’s discuss the structural challenges within the European Union highlighted in the recent Draghi report. What are the main‍ issues outlined?

**Dr. Thompson:** Mario Draghi emphasized the EU’s declining competitiveness, particularly when compared to the US and⁢ China. Issues such as over-regulation, demographic challenges,⁣ and reliance ⁢on foreign technologies contribute to stagnated productivity growth in the ‌eurozone, ​which has only increased by about 0.5% since 2015.⁣ Additionally, political fragmentation has slowed down necessary reforms, which could enhance economic ‍resilience.

**Host:** With all ‌these ⁢uncertainties, many ⁣investors are​ turning to gold as a safe haven. What ​do you make of the current gold market ‌trends?

**Dr. Thompson:** The recent surge in gold prices—now‌ over $2,700—reflects investors’ response to geopolitical and economic uncertainties. Gold offers a hedge against market volatility, especially during⁢ times of high inflation and systemic‍ risks. In 2023, we saw an 8% ‍price increase, and ⁣central banks, particularly in Asia, have made ⁣record gold purchases. It’s clear that gold’s allure as⁢ a⁣ stable asset is at an all-time high.

**Host:** Thank you, Dr. ‌Thompson, for your‌ valuable ⁤insights into these critical ⁢global ⁤issues.

**Dr. Thompson:** ⁢Thank you for​ having me. It’s essential ‍to understand how‍ interconnected our economies have become, especially ​in today’s climate.

**Host:** That wraps⁤ up our‍ interview today. Stay tuned for more ⁣discussions on the state of the⁣ global economy and its trends.

Red to the U.S. and China. Some key issues include over-regulation, an aging workforce, and excessive reliance on foreign technology. He pointed out that productivity growth in the eurozone has lagged significantly behind that of the U.S. since 2015. Political fragmentation, exacerbated by Brexit and other tensions within member states, has made decisive action on economic reforms extremely challenging. Without addressing these structural issues, the EU risks losing its global competitive edge.

**Host:** It’s a concerning scenario. In light of these geopolitical tensions, we are also witnessing a surge in gold prices, which recently surpassed $2,700 an ounce. Why is gold becoming increasingly popular as an asset during these turbulent times?

**Dr. Thompson:** Gold has traditionally been viewed as a ‘safe haven’ asset. Its value tends to rise during times of economic uncertainty, like we are experiencing now. With ongoing trade wars, economic sanctions, and high inflation, investors are looking for stability. In 2023 alone, gold’s price increased by 8%. Central banks, particularly in Asia, are ramping up their gold reserves, recognizing it as a hedge against volatility in financial markets. Moreover, gold’s negative correlation with the U.S. dollar makes it a key component for diversified investment portfolios in unpredictable environments.

**Host:** Thank you for those insights, Dr. Thompson. As we wrap up, what do you think investors should consider moving forward in this uncertain economic landscape?

**Dr. Thompson:** Investors should assess their risk exposure and look for assets that can withstand economic shocks. Diversifying into commodities like gold, as well as considering local markets that might benefit from shifts in global supply chains, could be beneficial strategies. Staying informed about geopolitical developments and their potential economic impacts will also be crucial for sound investment decisions going forward.

**Host:** Excellent advice. Thank you for joining us today, Dr. Thompson, and sharing your expertise on these pressing global economic challenges.

**Dr. Thompson:** Thank you for having me. It’s been a pleasure!