On one hand, the global stage will confront heightened challenges in securing and managing essential resources, a struggle deeply intertwined with geopolitical rivalries. On the other, there is an equally critical race for dominance in the field of AI, a key driver of future economic and strategic power. Both of these challenges demand effort and investment from companies with little guarantee of long-term payoff, especially as the situations shift on a seemingly weekly basis.

In the second of our three-part blog series, each covering two major challenges that the world will face in 2024, we delve into the ongoing challenges resulting from these competitions as well as some of the ways that businesses and organizations can best adapt.

Challenge #3: The fight for natural resources

It would be na茂ve to say that at any point in recent history nations have stopped competing for natural resources. The annals of the post-World War II era are replete with the strategic jostling for oil, minerals, and water, which has often dictated international relations and economic policies. However, this competition seems to be heating up as it heads into a new phase, especially as the international economy is starting to splinter back into .

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Part of this is simple supply and demand, of course. Countries that were once primarily based on resource extraction 鈥� such as China, India, and Brazil 鈥� have developed their own industries and are now becoming resource consumers, putting additional pressure on global resources. Combine this with a rush into the resources required by new green energy infrastructure, which includes a plethora of rare earth metals, and it becomes clear why the fight for .

Not surprisingly, one of the hotspots for this competition is a region with a scarred history of such conflicts: . The nation of 听in particular, one of the largest producers of precious metals, is facing serious challenges from social unrest, labor disputes, power shortages, and corruption. Meanwhile, the continent’s so-called stretching from West to Central Africa, is home to some of the world’s most sought-after minerals that are essential for electric vehicles, batteries, and electronics. As the name implies, political instability is a hallmark of the region, with within just the last couple years, often involving the intercedence of multiple foreign nations.

As the region鈥檚 former colonial power, France鈥檚 influence in the region has been in as a wave of popular vitrail against the old imperial power has grown. At the same time, Russian influence in the region is also somewhat uncertain. After years of growing prominence in the region as a peacekeeping and economic partner, Russia鈥檚 war in Ukraine may be a major turning point as African operations began competing for equipment and bodies with the Eastern European front.

China may be another story as it is also a major actor in Africa’s natural resource landscape, with a large and diverse presence in trade, investment, aid, and diplomacy. The nation opened its first oversea military base in the African nation of Djibouti in 2017 and has military agreements in . Add in the numerous American and western interests in the region, themselves no , and the potential for conflict to erupt somewhere over Africa鈥檚 resources in 2024 seems more like a certainty.

Indeed, instability will continue to be a constant companion to the opportunity for growth that Africa holds, yet as the world splinters into political and economic blocs, conditions could align where Africa is once again carved into fiefdoms of foreign nations. This kind of separation could pull apart not just geography, but the intertwining economic connections businesses, organizations, and peoples are currently struggling to build.

And Africa is not alone as a source of tension, as South America is currently experiencing an escalating crisis over the territory of Guyana. In December, Venezuela held a which focused on a potential annexation of a large swath of neighboring Guyana. The disputed region is , especially valuable for a struggling Venezuela oil industry. Guyana, in the world, is seen as the territory鈥檚 rightful owner by the and the potential for the crisis to pull in multiple powers exists. The eruption of a war in South America will bring broader levels of instability, especially in the global oil market but could also highlight how a region that has been relatively peaceful in the 21^st century can quickly spiral out of control.

In a very different corner of the world, Indonesia, the world’s fourth most populous country and a major exporter of coal, copper, and rare earth metals, is gearing up for , which could have significant implications for its natural resource sector. The current president has been pursuing a national industrial agenda that aims to 听of the country’s natural resources, especially in those minerals that are vital for green energy production. Such efforts hold the potential to turn the nation from not just a source of valuable natural resources but allow it to inherit the status of a global factory nation, especially as China shifts away from its manufacturing dominance.

All this competition over global natural resources will have significant implications for actors across the spectrum. As the global supply chain becomes more complex and fragmented, the challenges of ensuring its resilience, efficiency, and transparency will also grow, requiring more coordination and cooperation among stakeholders. Acquiring resources will likely only become harder for most industries and require greater attention from leadership as this situation intensifies.

Challenge #4: Artificial Intelligence

AI, as a technology, is unlikely to see such a payoff in 2024 that alone would categorize it as a dominant factor of the year. However, the long-term potential of the technology will force countries and organizations to begin competing for control and access now, because by the time the technology鈥檚 potential is realized these footings may be out of reach.

One of the key battlegrounds will be the production and supply of AI chips, which are specialized semiconductors that enable faster and more efficient processing of large amounts of data, an essential material for AI applications. The global AI chip market is expected to grow rapidly in the coming years; however, the market is also highly concentrated and dependent on a few players, mainly those in the United States and Taiwan that have the advanced technology and manufacturing capabilities to produce these chips. China, despite its massive investment and consumption of AI, still lags behind in this area and especially from the US, which has imposed on some of its AI chip makers, citing national security and human rights concerns. This has prompted China to accelerate its efforts to develop its own AI chip industry, through state support, domestic consolidation, and overseas acquisition.

Great attention will be paid to new developments that will begin to show the full potential of technology. and government intervention across the globe will also continue to be a dynamic force, shifting the courses that and take. For example, the has proposed a comprehensive framework for regulating AI applications, which aims to foster trust and innovation in AI, while addressing the ethical and social challenges posed by the technology. On the other hand, the US has adopted a more hands-off approach, relying on existing laws and to oversee AI. China, meanwhile, , investing heavily in its infrastructure, talent, and innovation ecosystem, as well as applying AI to various domains such as health, education, business, and security. China’s AI ambitions, however, have also raised concerns about its governance model, data practices, and geopolitical influence, especially as it seeks to export its AI solutions and standards to other countries.

Data and expertise are two other critical resources for AI development and deployment, and they will also be subject to fierce competition and contention in 2024. Data is the fuel for AI, and the quality, quantity, and diversity of this fuel are crucial for enabling the latest generation of AI models. The type of good data needed is also a scarce and valuable asset, however, and it is often proprietary, sensitive, fragmented, and subject to different rules and standards across jurisdictions. China has already proposed a for generative AI models with other countries likely to follow. Therefore, data collection and sharing will be a contentious issue in 2024, as stakeholders will have to balance the trade-offs between privacy and innovation, security and openness, and sovereignty and cooperation.

Not surprisingly, the demand for AI experts 鈥� such as researchers, engineers, and practitioners 鈥� will also continue to grow in 2024, as more sectors and domains adopt and integrate AI into their operations and services. However, the supply of AI experts will remain limited and uneven as the sudden rush of utilization outpaces the rate at which new experts can enter the profession.

Generative AI, the white-hot component of the AI tech stack, itself is unlikely to start paying off in 2024 as the world-changer it is said to be. And while the degree of investment into the technology is likely to be a defining feature of the year, Gen AI鈥檚 true potential will also be one of the largest question marks for the remainder of the decade.

For corporate leaders, these two challenges of competition over natural resources and AI, means that information and investing in proper due diligence will be keys to success. Leaders need to better understand their organizations鈥� supply chains, local regulations, and the goals of local and national governments. Without a doubt, getting a full view of the playing field is increasingly important, and those who fail to accurately assess the conditions will be those who fall behind in an increasingly complex world.

Our colleagues at Reuters are covering these and other crucial stories every day, and you can keep up with the best international reporting from around the world at .

To that end, in a new three-part blog series, each covering two of these major challenges, we will offer business professionals and governments the insight to better navigate what 2024 may have in store.

Challenge 1: Democracy under attack

Democracy, the system of government that allows people to choose their leaders and hold them accountable, . While this has been a years-long development, 2024 will be a particularly straining year, as more than 50 countries and regional bodies are experiencing major elections in the upcoming year, with four in particular that could have significant global impacts.

One of the most watched and consequential elections will be the presidential race in the United States, where incumbent Joe Biden will seek a second term against a (highly likely) challenge from former president Donald Trump, who has refused to concede his defeat in 2020. It will be a decisive moment for the future of American democracy, which has been eroded by partisan polarization, misinformation, voter suppression, and attacks on the integrity of the electoral system.

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Another key election will be in India, the world’s largest democracy, where Prime Minister Narendra Modi will seek a third term in office. Modi, who leads the Hindu nationalist Bharatiya Janata Party, has been accused of undermining India’s secular and pluralistic traditions, cracking down on dissent, and enacting controversial laws that discriminate against Muslims and other minorities. An effort by the government to 鈥� in a democracy already struggling with diversity 鈥� has only generated further concerns. Modi’s popularity, however, remains high among his supporters, who credit him with delivering economic growth, fighting corruption, and standing up to China and Pakistan. The 2024 Indian election will determine whether Modi can consolidate his power and agenda, or whether the opposition parties can mount an effective challenge and offer an alternative vision for the country.

The impact of these elections on geopolitics, global business, and society will be enormous, potentially shaping the policies and priorities of some of the world’s largest and most influential economies.

Other elections will also have important ramifications for the region and the world, as they will reflect the state of democracy and governance in their respective countries, as well as their relations with other powers. For instance, Taiwan will continue to be a flashpoint for US-China relations, as the island which China sees as its sovereign territory prepares for a democratic election in mid-January. Outgoing president Tsai Ing-wen鈥檚 Democratic Progressive Party seeks to defend her pro-independence stance and resist pressure from Beijing and the opposition party, the Kuomintang, in an election where is expected.

The election in Indonesia, the world’s largest Muslim-majority country and a rising economic power, will be a test of its democratic resilience and its role in Southeast Asia. The outgoing President Joko Widodo, who has served as the nation鈥檚 president since 2014, will be stepping aside as he reaches his term limit. His legacy of his Defense Minister Prabowo Subianto, whose vice-presidential running mate is Gibran Rakabuming Raka, the eldest son of President Widodo. Indonesia, for all of its growing power is a very young and thus relatively untested democracy, and it will have an important decision to make for Joko Widodo鈥檚 successor in an election already on all sides.

The impact of these elections on geopolitics, global business, and society will be enormous, potentially shaping the policies and priorities of some of the world’s largest and most influential economies. Alliances, trade agreements, and joint ventures are all dependent on the outcomes of these elections and what they say collectively about a prominent style of government.

Given the significance of these elections, it is crucial for business leaders to monitor and understand the political dynamics in these countries, as well as how they will affect the regional and global landscape. A proactive and informed approach to engaging with these democracies will not only help businesses mitigate the risks and uncertainties, but also allow them to seize the opportunities that these events offer.

Challenge 2: A fracturing global economy

Four years after the outbreak of the global pandemic, the international economy remains fragile and uncertain. The pandemic exposed and exacerbated the structural weaknesses and vulnerabilities of an interconnected global economy, one which is beginning to splinter into rival blocs. While potentially in only its early stages, the off shoring, re-shoring, and all-around realignment of global trade between these blocs is going to have a major impact on the world. Supply chains will be reshaped, relationships between companies will have to adapt, and new competitions will undoubtably emerge.

A core challenge facing the global economy going into 2024 continues to be, of course, inflation. In 2024, the inflation rate likely will fluctuate across countries and regions, depending on their economic conditions, policy responses, and external shocks. According to the , the global inflation rate is projected to be 5.8% in 2024, with core inflation not expected to return to target levels of around 2% until 2025. However, this global average masks significant differences among countries and regions. For instance, advanced economies are expected to see inflation of less than 3.0% in 2024, after averaging 4.6% in 2023. (Note: The 2023 figures are IMF projections for the full year given three quarters of data. Final growth figures for 2023 may deviate slightly from these projections.)

In light of this, the United States across the globe, but that is counterbalanced by and an especially sickly .

The inflation dynamic in 2024 will have important implications for the global economy, as it will affect exchange rates, interest rates, asset prices, income distribution, and the debt sustainability of many countries and regions.

Emerging market and developing economies, however, are expected to see 7.8% inflation on-top of the 8.5% inflation they saw in 2023, a significant struggle for nations that were already harder hit by the pandemic. Indeed, some countries such as Argentina, Turkey, and Egypt experiencing inflation at double- and even triple-digit rates.

The inflation dynamic in 2024 will have important implications for the global economy, as it will affect exchange rates, interest rates, asset prices, income distribution, and the debt sustainability of many countries and regions. It will also pose challenges and opportunities for businesses and professionals, which will have to adapt to the changing price levels and expectations while managing the associated risks and uncertainties.

Add to this worrisome economic picture the , the world’s second-largest economy and the largest trading partner of many countries and regions. China has been the main engine of global growth for the past four decades; however, its growth model 鈥� which relies heavily on investment, exports, and debt 鈥� may have reached its limits. Now, the country is facing multiple headwinds, such as an aging population, high unemployment among younger workers, declining productivity, and environmental and real estate crises. China鈥檚 slowdown will have a cascading effecting into foreign policy and other key interest areas, the full extent of which will depend on the responses of its government to the challenge.

Meanwhile, the world鈥檚 largest economy, the United States, seems to be better off, with greater optimism among its business leaders, even if the general public remains somewhat pessimistic. With slowing inflation and a historically strong labor market helping to lift real income, the nation鈥檚 economic fundamentals appear steadier than at any time since before the pandemic. Still, the US must dodge still-latent and crises, or any other major recession trigger. Yet even then the country may still slip into an economic malaise simply because consumers have convinced themselves of its inevitability. If it remains resilient, however, a strong US economy could send positive ripples across the business and political world.

Conclusion

In 2024, democracy will be under stress, as authoritarian leanings will seek to make a mark in upcoming elections and populist movements challenge the established institutions. At the same time, the global economy is likely to face multiple challenges and uncertainties, as well as some opportunities for recovery and resilience.

While these are major challenges 鈥� and only two of the six largest factors we鈥檒l be covering in this series 鈥� we have to acknowledge that unforeseen occurrences can rapidly shift the state of the world, and are in fact, becoming alarmingly common. An assassin鈥檚 bullet, a heart attack, a natural climate disaster, a war, or even another pandemic, can impact the world in ways that cannot be predicted.

As such, organization leaders need to maintain the flexibility they were forced to develop during the pandemic as part of a plan of strategic preparation to face whatever 2024 has in store.

You can read the second part of this series, focusing on the global competition for natural resources and artificial intelligence, here.

Our colleagues at Reuters are covering these and other crucial stories every day, and you can keep up with the best international reporting from around the world at .

And while much of the industry鈥檚 improving health has been the result of strong demand for counter-cyclical work 鈥� which has, thus far, been enough to compensate for weakened demand in transactional practice areas 鈥� that may be changing. Since the LFFI鈥檚 Q2 release, 成人VR视频 Financial Insights鈥� data has started to show signs of counter-cyclical demand growth potentially cresting, adding fuel to the already burning question of 鈥�When will transactional demand return?鈥�

Through the first two quarters of this year, demand growth for transactional work has fallen to levels not seen since the end of the Global Financial Crisis. This is a far cry from the last decade, in which low, almost 0% interest rates were used by the Federal Reserve to stimulate economic growth and spur a recovery. This added liquidity helped corporations finance deals, and over the course of a decade we saw transactional demand drive law firm performance. Central banks continued to keep interest rates low during the COVID-19 pandemic even when governments around the world pumped historic stimulus packages into their economies.

These factors, along with others, helped accelerate transactional demand growth to the greatest pace in our data鈥檚 history, and firms reaped the rewards in 2021. These low-interest rates also contributed to what was then called transitory-inflation, which, when the Fed began realizing was not so transitory, led to a series of the fastest rate hikes in U.S. history. Over the course of the past 18 months Fed officials increased their target interest rates from nearly 0% to a band of 5.25% – 5.5%, while demand for transactional work was pushed down from over 8% growth to a contraction of more than 4% on a rolling 12-month basis.

This brings us back to the present day, in which tightened balance sheets, increased credit risk, and a still uncertain economic environment have cooled much of the current appetite for deal-making. Law firms, which in 2022 saw 37% of their billable hours come from clients鈥� eagerness for transactional work, are suffering. Lower demand has translated into lower productivity, which itself has resulted in some associates being let go, and partners enduring lower profits per equity partner as they wait for a return of transactional demand; a return which increasingly hinges on a return of lower interest rates.

This week, the Federal Open Market Committee (FOMC) announced that their target rate would hold steady at a band of 5.25% to 5.5%. Most of this pause was already priced into the market with a probability of 97% and the end of last week that the Fed would stay at the target rate set in July, according to the CME FedWatch Tool (which tracks Fed Funds鈥� futures prices). Moving forward, market expectations are more divided. Probabilities of a rate increase in November and December are currently at 28% and 46% respectively, with the market forecasting rate decreases to potentially come in no earlier than January or March 2024.

These expectations largely depend on how the Fed interprets economic indicators like the inflation index, jobs reports, and GDP growth. Last week headline inflation ticked up to 3.7% in August from 3.2% in July as consumers faced rising energy and food prices, while core CPI rose a lesser but still concerning 0.3 percentage points to 4.3% in August, compared to July. The jobs report from August showed slower hiring and posted unemployment at 3.8%, up from 3.5% in July but still well below historic norms. Current GDP forecasts also stand well above the Fed鈥檚 long-run potential growth rate of around 2%, with the Atlanta Fed鈥檚 GDPNow model estimating 4.9% growth in Q3.

However, it is the muddiness and crosscurrents of these indicators that cloud the Fed鈥檚 interest rate path and make it difficult for law firms to plan ahead for a potential resurgence of transactional demand. If the Fed interprets an uptick in unemployment as signs of a cooling economy, that may reinforce its current stance of holding rates steady and eventually lowering them. However, if inflation continues to ascend, or remain elevated, and the economy continues to run hot, the Fed may very well raise rates going into 2024 or hold the current levels for longer, further stressing transactional demand.

Personal Consumer Expenditures (PCE) inflation (the Feds preferred gage of inflation) has come down from above 5% last year, but many fear that the Feds鈥� 2% core inflation target will be harder to reach as elevated housing and rent costs and increased wages place upward pressure on prices.

All of this leaves the Fed with a difficult decision on how much harder and longer to squeeze monetary policy. During yesterday鈥檚 FOMC meeting, Fed chair Jerome Powell said that 鈥渢he process of getting inflation sustainably down to 2% has a long way to go鈥�, and that 鈥渟tronger economic activity means we have to do more with rates.鈥� He also added that economic lags in response to monetary tightening would be another reason for the Fed to proceed carefully, signaling to the market and legal industry that this period of uncertain transactional movement is likely to remain for the time being.

Despite the uncertainty in interest rates, it does appear that there is growing optimism from corporate General Counsel (GCs) in terms of increased transactional spend. When GCs were asked if they anticipate an increase or decrease in legal spend in specific practices in the next 6 to 12 months, the net difference between the respondents that say they expect an increase minus those that expect a decrease was, for example, 9.1 percentage points in regard to anticipated M&A spending, according to 成人VR视频 Market Insights data (This difference is referred to as net spend anticipation).

Over the course of 2023 it鈥檚 easy to see that there has been a notably positive swing, especially in M&A and corporate work. The data indicates that buyers could be anticipating their C-suite and boards will eye more deal-making, under the assumption that interest rates will start easing sometime during 2024 and that the declining demand for these practice areas may have bottomed out.

As we navigate the intricate landscape of the legal industry in 2023, however, it is evident that transactional demand is facing unprecedented challenges, reminiscent of the post-Global Financial Crisis era. The Federal Reserve’s decision to maintain interest rates at the current level has provided a momentary respite from drastic changes, yet the path forward remains shrouded in uncertainty, with economic indicators pulling in conflicting directions.

However, there are glimmers of optimism for transactional practice areas; and as we move forward, the legal industry remains poised, waiting for clearer signals from the Fed and the broader economic landscape.

In what Fed Vice Chair for Supervision Michael Barr called an “unflinching” review of the U.S. central bank’s supervision of SVB, the Fed said its oversight of the Santa Clara, California-based bank was inadequate and that regulatory standards were too low.听“SVB’s failure demonstrates that there are weaknesses in regulation and supervision that must be addressed,” Barr said in a letter accompanying a 114-page report, which also was supplemented by confidential materials that are typically not made public.

While it was the regional bank’s own mismanagement of basic risks that was at the root of SVB’s downfall, the Fed said, supervisors of SVB did not fully appreciate the problems, delaying their responses to gather more evidence even as weaknesses mounted, and failed to appropriately address certain deficiencies when they were identified.听At the time of its failure, SVB had 31 unaddressed citations on its safety and soundness, triple the number its peers in the banking sector had, the report said.

One particularly effective change the Fed could make on supervision would be to put risk mitigation methods in place quickly in response to serious capital, liquidity, or management issues, a senior Fed official said, adding that such increased capital and liquidity requirements also would have bolstered SVB’s resilience.

Barr said that as a consequence of the failure, the central bank will reexamine how it supervises and regulates liquidity risk, beginning with the risks of uninsured deposits.

Regulators shut SVB on March 10 after customers withdrew $42 billion on the previous day and queued requests for another $100 billion the following morning.听The historic run triggered massive deposit outflows at other regional banks that were seen to have similar weaknesses, including a large proportion of uninsured deposits and big holdings of long-term securities that had lost market value as the Fed raised short-term interest rates.

New York-based Signature Bank failed two days later (the Federal Deposit Insurance Corporation release its the same day as the Federal Reserve鈥檚 assessment of SVB), and the Fed and other U.S. government authorities moved to head off an emerging crisis of confidence in the banking sector with an emergency funding program for otherwise healthy banks under sudden pressure and guarantees on all deposits at the two banks.

Supervision headcount fell

Before the twin bank failures in March, banking regulators had focused most of their supervisory firepower on the very biggest U.S. banks that were seen as critical to financial stability.听The realization that smaller banks are capable not only of causing disruptions in the broader financial system but of doing it at such speed has forced a banking regulators to rethink their position.

“Contagion from the failure of SVB threatened the ability of a broader range of banks to provide financial services and access to credit for individuals, families, and businesses,” Barr said. “Weaknesses in supervision and regulation must be fixed.”

In its report, the Fed said that between 2018 to 2021 its supervisory practices shifted, and there were increased expectations for supervisors to accumulate more evidence before considering taking action. The staff interviewed as part of the Fed’s review reported pressure during this period to reduce burdens on firms and demonstrate due process, the report said.

Barr signaled in his accompanying letter that this situation would change. “We need to develop a culture that empowers supervisors to act in the face of uncertainty,” he said.

Between 2016 and 2022, as assets in the banking sector grew 37%, the Fed’s supervision headcount declined by 3%, according to the report.听As SVB itself grew, the Fed did not step up its supervisory game quickly enough, the report showed, allowing weaknesses to fester as executives left them unaddressed, even after staff finally did downgrade the bank’s confidential rating to “not-well-managed.”

The Fed is looking at linking executive compensation to fixing problems at banks designated as having deficient management so as to focus executives’ attention on those problems, a senior Fed official said in a briefing.

One thing the report did not do was place any blame at the feet of San Francisco Fed President Mary Daly, with a senior Fed official telling reporters that regional Fed bank presidents do not engage in nor have responsibility for day-to-day supervision of banks in their regions.

While the fallout from the failures of SVB and Signature themselves may have subsided, the ripple effects continue. The forced sale on May 1 of San Francisco-based First Republic Bank after its deposit outflows following the SVB and Signature collapses exceeded $100 billion shows that smaller, regional banks may not be out of the proverbial woods yet.

This blog post was written by Chris Prentice & Hannah Lang, both of Reuters News; with additional reporting by Ann Saphir.