Geopolitical jigsaw: Unravelling its impact on financial market resilience

Increased uncertainty and rising cross-border tensions affect global capital flows and financial stability. Tensed ties between the USA-China, the Russia-Ukraine crises, the most recent Israel-Hamas war etc., are a few recent geopolitics situations which have affected overall financial and capital market stability. As per the IMF report, since 2016, there has been about a 15 per cent reduction in bilateral cross-border allocation of portfolio investment and bank claims between the USA and China.

- DR SAIF SIDDIQUI AND DR NEHA SETH

IMF October 2021 Outlook report estimated global economic growth (in 2022) to be five per cent. The Organization for Economic Cooperation and Development (OECD) projection slackened to 2.2 per cent in 2023. European Union (EU) Autumn 2022 Economic Forecast stated that the EU, due to its vicinity to the Russia-Ukraine war, was exposed to lower growth as it relies on imported fossil fuels. This war impacted Europe's economy, where growth in 2023 is projected to be just 0.29 per cent and 1.58 per cent in 2024. This has created an uncertain investment environment for India, where India has to navigate its uncertainty with a proper policy structure.

The Middle East's considerable position as a prominent oil provider highlights its potential to instigate global disruptions, as seen by the tangible existence of substantial geopolitical risks.

The Israel-Hamas conflict exerts a significant influence on the global economy. According to Bloomberg's analysis, there is a potential for the price of oil to increase significantly, reaching a level of USD 150 per barrel. Additionally, this jump in oil prices might have a negative impact on global economic development, potentially resulting in a decline of 1.7 per cent.