What is in store for us in 2024?
With low interest, debt was not much of a problem. But now that rates have risen it needs to be paid back
The start of a new year also brings with it the temptation to look at the crystal ball and wonder what could be in store for us.
We will certainly carry over to this year a number of challenges of 2023. These have include the conflict in Ukraine and the Middle East; inflation caused by the greed of some multinational companies; the threat posed by populist political leaders; and climate change. I also add something more specific to Malta, namely the need to change our economic model.
As if this were not enough, we need to look at other developments that are likely to characterise 2024. Artificial intelligence is one of them. During 2023, we suddenly woke up to this phenomenon which, in reality, has been with us for decades.
What occurred in 2023 was the development of what IT gurus are calling ‘generative AI’. There are now many who believe that generative AI will transform our society and our economy in the way steam power, electricity, the telephone, and internet did.
On the upside, AI has the potential to significantly enhance productivity in an economy. This will increase national income in a number of countries. On the other hand, the question that keeps coming up is whether it will disrupt the labour market to such an extent that jobs will be lost and they will not be readily replaced, thereby causing poverty, unless workforces are urgently reskilled.
Another risk is that the benefits of AI will be restricted to a small number of global companies, thereby making the rich richer and the poor poorer, and creating more social injustice. There is also the risk of using AI to create fake news to influence the political environment in countries. This makes it necessary to develop a regulatory framework within which AI can continue to develop.
We may have defaults on loans at country and corporate level
Another possible development in 2024 is a debt crisis, both at the level of individual countries and at a corporate level. Several companies, local and foreign, became highly indebted to combat the impact of the coronavirus. Payments were deferred because it had become the accepted norm.
With a low-interest-rate regime, that was not seen to be much a of a problem. The time has now come for debts to be paid back. With interest rates having risen during 2023, the burden has become larger and may not be sustainable.
The same applies to some countries. The coronavirus pandemic had slowed growth in most countries. In a number of them, the economy has not yet bounced back, while interest rates have risen. Repaying back their sovereign debt may prove to be very hard, if not impossible.
As such, in 2024, we may have a bloodbath, with defaults on loans both at a country level and at a corporate level. One trusts that the global financial system can withstand the flood.
These challenges will have an impact on our economy, even though they are not Malta-made. I believe that this makes it important for us to take steps to face them. Our economy has traditionally been a resilient one in times of international crises. We should not take this for granted but work to strengthen that resilience.