Today's Deep Dive is 1,300 words and an 8-minute read.
Global
Central banks end year of gradual easing, with cautions for 2025
This week, many central banks made end-of-the-year decisions on interest rates, following on a year of gradual easing and warnings that 2025 may resent new economic headwinds.
Our Take: Among the world's major market economies, most judged that inflation had been tamed, cutting interest rates to pump more liquidity into their markets to fuel growth. The outliers were Japan, with a modest rate hike and, Norway and Australia, which held rates steady. Looking to 2025, central banks are highlighting uncertainty, with headwinds from geopolitical tensions and new barriers to free trade, moderating expectations on global growth. While the outlook for US economic growth is strong, Europe and China continue to face structural challenges slowing their post-pandemic rebound. Interest rates will trend lower, but at a slower rate than 2024.
Read More: Reuters [paywall], Forbes, World Bank
Europe
Political crisis in Georgia deepens as "outgoing" president refuses to step down
Salomé Zourabichvili called on EU countries to avoid 'business as usual' with the Georgian government, as 'Russia is experimenting a new form of invasion' in the country.
Our Take: Zourabichvili is refusing to step down, following the parliament's election of Mikheil Kavelasvili over the weekend. Zourabichvili, and the opposition more broadly, consider the parliamentary elections as rigged and illegitimate, making all parliamentary actions illegitimate. The Western response has been mixed. The US and UK have stated solidarity with the Georgian people and imposed human rights sanctions on specific Georgian officials for violent crackdowns on protesters. The EU failed to garner sufficient member state support for stronger sanctions on Georgian officials for repressing demonstrators, but will impose visa restrictions. None have telegraphed their position on the legitimacy of Kavelasvili's election, whose inauguration is scheduled for December 29. The Georgia Dream party, meanwhile, is signaling that it plans to wait out the Biden administration and seek a more favorable understanding with the incoming Trump administration. But at home, the political environment is polarized, with the new government likely to respond to protracted protests with repression and new restrictions on personal freedoms.
Read More: Euronews, Financial Times [paywall], European Council on Foreign Relations
Middle East
Israel strikes back against Houthis
Israel struck Houthi targets hours after intercepting missiles sent by the armed group, and promised Israel would extract "a very heavy price."
Our Take: Israel and the Iran-backed Yemeni Houthis have traded low-level missile attacks and strike attempts since shortly after the onset of the Israel-Hamas war, with the Houthis' Red Sea maritime attacks the much larger element of their contribution to regional tensions. Israel may now be hinting a stronger effort to curb Houthi aggression: in an announcement of the strikes, Prime Minister Netanyahu referred to the Houthis as "almost the last arm of Iran's axis of evil" after the degradation of Hamas, Hizballah and Syria capabilities. Like Syria, Israel could take advantage of Iran being on the back foot to more decisively stem Houthi offensives.
Read More: New York Times [paywall], International Institute for Strategic Studies, Washington Institute for Near East Policy
Asia-Pacific
Top US official says Pakistan is working on missiles capable of reaching the US
A senior White House official claimed that Pakistan is developing long-range ballistic missiles, potentially enabling it to strike the US, a day after Washington announced a new set of sanctions concerning Pakistan's ballistic missile development program.
Our Take: The remarks by Deputy National Security Adviser Jon Finer mark a significant escalation in US concerns about Pakistan's ballistic missile program, framing it as an emerging threat to the United States. Pakistan has condemned Washington's latest sanctions, and Finer's statements risks further straining ties between the once-solid security allies. Islamabad continues to justify its missile program as a deterrent against India, highlighting the regional security dynamics that remain central to its defense strategy. However, its shift toward long-range missile capabilities raises crucial questions about the evolving focus of Pakistan's strategic priorities and their broader geopolitical implications.
Read More: Reuters [paywall], Al Jazeera, Stimson Center
Trade and Compliance
Americans hurry to purchase cars and appliances ahead of Trump's new tariffs
Anticipating new Trump administration tariffs, Americans are rushing to buy cars, appliances, and other major imports, potentially fueling the inflation they aim to avoid.
Our Take: The rush to purchase imports ahead of the expected tariffs reflects growing consumer anxiety over potential further price increases and inflation. This surge in demand could create short-term economic distortions, driving up prices for vehicles and appliances even before the tariffs would take effect. Retailers and manufacturers are navigating complex inventory challenges, while lower-income households face barriers to stockpiling goods, potentially deepening economic inequalities. Should Trump follow through on enacting his proposed tariffs, they could fundamentally reshape consumer spending patterns and supply chain strategies in the months – and possibly years – to come.
Read More: Washington Post [paywall], Axios, Hoover Institution
Disruptive Technology
AI's growing energy demand boosts geothermal startups, but competition with natural gas casts uncertainty on their future
Geothermal energy startups are gaining traction as large technology companies seek power for artificial intelligence (AI) data centers, but future investments are uncertain due to energy producers' increased focus on natural gas.
Our Take: Geothermal energy, derived from the natural heat stored beneath the Earth's surface, is gaining attention as a carbon-free alternative for powering AI data centers, yet its expansion is clouded by a renewed emphasis on natural gas, driven by energy security concerns. With oil majors promoting natural gas as a stable and scalable option, often integrated with carbon capture technologies, geothermal faces stiff competition despite its environmental advantages. These include overcoming high upfront costs and lengthy project timelines with the established infrastructure and economic advantages of traditional energy sources. The balance between private investment, government incentives, and energy market dynamics will determine whether geothermal can carve out a sustainable role in the evolving energy landscape, especially as it pertains to AI and other emerging technologies.
Read More: Reuters [paywall], Geothermal Rising
Energy Transition
US releases LNG report warning of risks of increasing US exports
The US Department of Energy found that increased LNG exports will contribute to higher electricity and natural gas prices, increased greenhouse gas emissions.
Our Take: The report has been long-awaited, drafted in order to inform Energy Department decisions on new permits to export gas. As expected, it was received with the full range of approval and disapprobation. However, coming out just weeks before the change in government, its direct impact will be diluted, if not deleted. Incoming President Trump is expected to approve new LNG export projects as part of his agenda to promote the development of all US energy sources, and could order the report withdrawn and amended to remove any authority on future determinations. However, the report will add to debate over what constitutes "national interests" as a criterion during regulatory review.
Read More: Politico, US Department of Energy, Center for Strategic and International Studies
ESG
Lame duck Biden EPA sets higher emission reduction targets
The outgoing Biden administration set a new target of reducing greenhouse gas emissions by 61% to 66% below 2005 levels in the next decade.
Our Take: The Trump administration is highly unlikely to honor the commitment, which represents a voluntary target required by the US' participating in the Paris Agreement – a convention Trump left during his first term and which he has promised to exit again. However, White House officials said the goal may largely be possible without the endorsement of the federal government, by using state, local, and tribal action with help from the private sector. A recent study from the University of Maryland found that with strong state and local leadership, the US could reduce emissions by 54% to 62% without federal support for climate policies.
Read More: Wall Street Journal [paywall], University of Maryland
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