2024 has begun and most people are thinking about what the finance challenges will be this year. First of all, that is an analysis that should have been carried out some months ago, as some have effects since the very beginning of the year. There are many uncertainties regarding this year, there are multiple areas of political life, geopolitics, wars, elections, etc., that could direct the economy to different directions. 

The first idea to take into account when we talk about the financial challenges of 2024 is what has happened during 2023 and what are the uncertainties that exist with respect to any issue that may influence the financial sphere at a global level, obviously taking into account the most relevant ones. 

Inflation, interest rates 

Two of the most important issues for this year, treated in a unique way because they are closely linked, are what will happen to inflation and interest rates. Interest rates can have a very significant impact on the finances of any family, that is, on their consumption, and on companies. By raising or lowering interest rates, the price of money and what any economic actor pays for their debt changes, so the greater the amount, the lower the available income left to consume or invest. 

In the event that inflation continues to rise, is not controlled by the central banks or, even if it continues to fall, is not considered sufficient, the central banks will keep interest rates high or will not lower rates much. At worse, they could even raise the interest rates, if there is a reason to do it, even that is unlikely. 

This would cause families to consume less, by allocating more money to pay their debts (mainly mortgages and consumer loans) and companies would not invest as much. 

Furthermore, it must be considered that company valuations are carried out by discounting their cash flows using a discount rate, which implicitly includes the sovereign debt of any country. The higher the interest rate, the higher the discount rate and lower valuations, so listed companies, beyond lower sales prospects due to reductions in consumption, would also be affected by a technical issue of company valuation. Also private companies, discounted with even much higher discount rates due to more uncertainty. 

Supply chain, again 

Another relatively new factor for this year are the possible problems in the global supply chain (again, after the breakdown that occurred as a result of the measures taken to alleviate the health effects of COVID-19). In this case, it is due to attacks in the Red Sea, one of the main links in the global supply chain, by the Houthis (armed by Iran and attacking as a consequence of the Israeli attacks on Gaza) against Western oil tankers. In addition, there is also a significant drought in the Panama Canal, so circulation through this other route of global maritime trade has been slowing down for months now. 

All of this, as seen during and after the pandemic, can make the prices of both raw materials and finished products more expensive, as there is a shortage of them. If this occurs and causes inflation, this would consequently lead to an increase in interest rates, with the effects discussed above.  

Wars 

We will have to take into account, unfortunately, the effect of the wars in Ukraine and Israel, which have also caused shortages in some basic products, especially food (such as Ukrainian cereal), with consequences on the prices of many products or raw materials (oil, gas, electricity, etc.) and several geopolitics tensions. 

In addition, there are other fronts that could be opened, such as that of Guyana – Venezuela, Taiwan – China and other areas of the world that live with certain war conflicts. 

Public Debt 

With the outbreak of the 2008 financial crisis, most Western countries significantly increased their public debt, although reducing private debt due to a contraction in the granting of credit. This public debt, which began to be reduced shortly before the outbreak of the COVID-19 pandemic, began an unprecedented increase to alleviate the effects of the latter, reaching limits very far from the previous ones. This debt has only begun to be reduced due to a mathematical effect, as the debt is evaluated based on GDP, and this has recovered pre-COVID-19 levels. In addition, many countries continue with some measures to support their economies and the most vulnerable layers of society, so there is still the challenge of returning to normality and reducing debt. With such high debt levels and high interest rates, the countries’ financial interest burden is very high, and making stimulus policies is becoming more and more complicated, in addition to increasing their credit risk and the confidence of investors. 

Deceleration 

To all this, we must add that many countries are in a process of deceleration, and may even enter a recession. If this happens, and especially in countries as important as the United States, Germany or China, which are the main drivers of the world or their economic areas, this complicates the situation described above, with high inflation, record debts and the highest interest rates in what we were usually used to. 

US and EU elections 

Last, but not least, we must consider that in this scenario of economic uncertainty we add the US presidential and European Parliament elections 2024. A priori, this should not lead to uncertainty or economic effects, but the way politics has worked in recent years, the necessary policies that improve the economic situation or attack the perverse effects mentioned above may not be implemented, since their effects on the population in the short term would be negative, and it is not usually something that a campaigning politician wants. With the two main economic blocks in campaign, this generates even more uncertainty and weakness in the economic situation of these countries. 

A little bit of hope 

Although these are the main financial issues and challenges of 2024, many of them with negative aspects, it must be considered that there are others that can have positive effects, such as the effects of well-used artificial intelligence that can generate greater productivity or the solution of previous problems, which are discounted in the financial markets and the mood of consumers and companies, which would lead to a better economic situation, as the main economic challenges and problems disappear.