IMD World Competitiveness Booklet 2023

decline across various regions. However, the subsequent three years witnessed a significant rise in CPI as inflation surged, reshaping economic landscapes and unsettling markets. The highest increase was experienced by countries in Ex-CIS & Central Asia with Western Asia & Africa and Eastern Europe following closely behind. Southern Asia & the Pacific along with Eastern Asia experienced the lowest levels of inflation, on average. Inflation erodes consumers’ purchasing power with each price surge. Additionally, the distortion of price signals caused by inflation creates an environment in which production decisions become suboptimal as producers struggle to make accurate assessments of market conditions. As a result, resources are misallocated, leading to inefficiencies in the economy. The resulting decline in consumer confidence exacerbates overall economic challenges, casting doubt on the prospects of a robust recovery. In addition to supply-chain disruptions and rising prices of raw materials, another reason for inflation is the ability of busi Geopolitical risk can be defined as the potential disruption of economic, polit ical, and social stability due to existing geopolitical factors, such as political conflicts, trade disputes, or security threats between countries or regions. A once-dormant factor in decision-making, it has become a critical concern for public and private sector leaders; a consequence of the transition from a unipolar world dominated by the United States to a multi polar world, where players like China, the

nesses to roll over the costs of said materials and increases in wages to consumers. Encouragingly, after a year of central banks worldwide increasing interest rates to tackle rising prices, infla tion seems to stabilize if not decelerate currently. Take, for instance, April 2023’s inflation rate in the US which, at 4.9%, is lower than that for March 2023 (5%) and February 2023 (6%), continuing the decline that began in June 2022, according to Statista data. Analysts, nevertheless, are expecting inflation to be a key consideration in the minds of public and private sector decision-makers in 2023 and beyond, and one reason is the tight labor markets found worldwide. Figure 2 outlines the average unemployment rate across different regions for the last five years. All regions are experiencing declining levels of unemployment, oscillating between 4% and 6%. This implies that matching up employees and available positions will remain challenging and will possibly result in higher wages. Another reason is the re-emergence of geopolitical risk. European Union, and the United States are all vying for influence. The escalation of US-China tariff disputes in 2018 marked an early sign of the reap pearance of geopolitical risk. The impo sition of tariffs on an increasing range of products resulted in heightened costs for importing entities and created uncer tainty for private sector investments. The invasion of Ukraine by Russia in early 2022 further elevated concerns

Geopolitical risk in 2023: No longer a dormant factor in decision making

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