As we enter 2024 our economic focus will no doubt remain on the hangover of a slowing economy caused by higher interest rates. But as painful as they are, higher rates are just part of the economic cycle.
What we should be focused on are the strategic responses by governments and business to the massive structural changes under way in the global economy and geopolitical world order. It's why 2024 will be characterised by uncertainty, volatility, and fragility.
On the economic front, climate change and rampant technological advancement, particularly generative AI, are driving disruption and structural change. These two mega forces are upending fundamental economic structures and relationships in our economy.
Meanwhile, the gradual fragmentation of the once hegemonic global political and economic order is unfolding, demanding Australia adopt a more nuanced security and diplomacy posture centred around our immediate neighbours in the Indo-Pacific.
The economic challenge requires policy bias in favour of investment in decarbonisation, new skills, and technological adoption like never before. The ethical and regulatory settings for new markets, competition, and innovation, will all require policy action and strategic decisions by business.
It can't be denied that climate change is driving a change in the very production systems of our economies - decoupling how we produce goods and services and what we consume from emissions intensity. New sources of energy will disrupt existing industries, energy production will become more localised, every industry will be transformed, and new assets and liabilities centred around natural capital will enter our balance sheets.
The lack of sufficient attention to market mechanisms (like a carbon tax) and policy coherence in recent decades, despite a narrow window for change, means that this transition is more bumpy and costly than should be the case.
It will see more volatility in prices over the coming decade even as central banks, like our Reserve Bank of Australia, focus on bringing inflation down.
For business this is now a decarbonisation race, with smart companies already digging deep into their supply chains to see where and how emissions can be lowered, and how they can service emerging customer needs while satisfying financiers and shareholders alike. A focus on these ecosystems will be a new unit of analysis for business strategy.
Business also has the unenviable problem of having to juggle decarbonisation with managing technological change. Generative AI will continue to run well ahead of our ability to think about regulation, market structures and conduct. For business, this is a killer issue: the uses of generative AI seem clear, but the consequences less so.
Already, we know that at least a quarter of the Australian economy, accounting for over $600 billion in economic activity is being disrupted by AI, with white collar jobs, business processes, and skills in the workforce rising up the anxiety chart of CEOs.
For governments, coming to grips with the transparency of information and truth versus fiction, a bedrock of civil society, will pose significant concerns in the coming year.
While climate change and tech will bring about structural change through 2024, geopolitics will rise in consciousness as a third driver of structural change for business and economies, exposing the fragility of globalisation, trade, and supply chains.
Geopolitics has, sadly, become a pejorative term. The reality is that the tectonic struggle between superpowers, namely, the USA and China, is taking shape through global institutions, trade, and cultural connections between countries.
The retreat from globalisation, the rise of regional or multi-country funds and trade, the rise of strategic alliances - not just regional blocs - for trade, and the trashing of global institutions such as the WHO, UN, and NATO are all symptoms of the process of a fragmentation of the post-Cold War geopolitical order.
Fragmentation doesn't necessarily mean a multi-polar world, but it does give some power to emerging and middle power economies. It's why Australia should take note of economies such as India and China and develop a more sophisticated approach to our place in this region, balancing better the complexity of security and trade that our region bowls up.
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These geopolitical shifts are slowly, but inexorably, translating into geoeconomics. For business, where one locates supply chains is no longer simply about what's cost effective but instead increasingly centred around questions of national security.
There's a new triangulation between economic growth, security, and technology.
The challenge for Australia is to place a premium on the development of an outward security and diplomacy posture which recognises the growing geoeconomic consequences of geopolitics.
With a super cycle of elections around the corner in the US, UK, India, and much of Europe, geopolitics and geoeconomics will rise in the public discourse through 2024.
Business as usual just won't cut it in 2024 as value destruction sits alongside value creation - the hallmarks of structural change.
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