INTEGRATED ANNUAL REPORT 2024 52 53 SECTION 6: STRATEGIC REVIEW www.miscgroup.com MISC BERHAD Our Operating Environment SHORT TO MEDIUM TERM GEOPOLITICS What Happened in 2024 MEDIUM TO LONG TERM The year 2024 was defined by heightened geopolitical tensions as global crises continued to influence economic and energy security dynamics. The ongoing Russia-Ukraine conflict, along with rising hostilities in the Middle East, had widespread effects on global trade, energy supply chains, and economic stability. As geopolitical risks increased, international alliances became more divided, reshaping the balance of global power. One of the most significant developments in 2024 was the expansion of BRICS. Originally consisting of Brazil, Russia, India, China, and South Africa, the bloc welcomed four new members namely Iran, the United Arab Emirates, Egypt and Ethiopia. This expansion strengthened its economic influence, bringing BRICS to represent 45% of the world’s population and contributing more than 25% of global gross domestic product (GDP). The group is now closing the gap with the G7 nations, which have traditionally dominated the global economy. The year also saw an unprecedented number of elections, with more than 70 countries representing over 40% of the global population casting their votes. Among these were major economies such as India, Indonesia and the United States (US), collectively home to over two billion people. In the United States, Donald Trump made a political return by winning the presidential election in November, a development with significant geopolitical and economic implications. Other key countries that held elections included the United Kingdom, Russia, South Korea, and South Africa, further shaping the global political landscape. How We Were Impacted and How We Responded The ongoing geopolitical conflicts have continued to expose the shipping sector to significant risks related to operational safety and security. The shipping sector adapted by rerouting vessels to safer but longer alternative routes, resulting in high tonne-mile demand throughout the year. The Group remained focused on delivering our performance through long-term charters. Our secured revenue with strong counterparties have enabled the Group to generate sustainable and recurring income amidst market uncertainties. Additionally, our diversified portfolio of businesses helps to protect us against market volatility. The Group continuously monitored the developments of major geopolitical conflicts and took the necessary mitigating measures to ensure the safety of our seafarers and assets. What Is the Outlook? The ongoing conflicts could possibly shift the power balance among countries, while the growing realignment of geopolitical allies is contributing to larger and broader conflicts, indicating a trend towards the emergence of a more polarised world. The heightened geopolitical risks and ongoing deglobalisation will continue to pose significant challenges to global economic growth. The uncertainties amidst sanctions and trade shifts may potentially reshape the global economy in the short term. In Europe, political dynamics appear to be shifting rightward in several countries, influenced by public dissatisfaction over rising living costs, the energy crisis and ongoing economic and social challenges following the pandemic. This trend could lead to a stronger presence of nationalist parties, potentially complicating the EU’s ability to pass legislation on key issues such as climate change policy and agricultural reforms over the next five years. Meanwhile, in the United States, President Trump has signed multiple executive orders since his inauguration in January 2025, aimed at revising tariffs and trade policies. This could potentially have significant implications for global economic relations and reshape global economic trade. Furthermore, his executive orders signal a shift in US policy away from climate commitments and energy transition efforts, placing a renewed emphasis on expanding oil and gas production. With trade flows shifting, economic uncertainty rising and geopolitical risks escalating, the shipping industry must prepare for potential high volatility and market disruptions in 2025. Our Operating Environment ECONOMY How We Were Impacted and How We Responded The Group implemented various financial management strategies, including maintaining a high fixed-to-floating rate borrowings ratio, which have been instrumental in navigating market volatility. Furthermore, the Group strategically allocated internal funds to support projects under construction, therefore optimising financing costs while preserving our liquidity. Throughout the year, the Group prioritised efficient execution of existing projects while being selective in pursuing investment opportunities. This involved a deliberate focus on pursuing long-term contracts with strategic clients. Fundamentally, the Group’s long-term charters and other sources of secured revenue with strong counterparties have enabled us to generate sustainable and recurring income over the years. Additionally, the Group’s diversified portfolio of businesses protects us against market volatility. Although risks remain, the Group is well-positioned for growth based on the visibility of our cash flows from operations. This allows us to plan our growth to meet our strategic goals, even in challenging economic circumstances. What Is the Outlook? Despite the anticipated decline in interest rates, global economic growth is expected to be volatile amidst policy changes. According to the IMF, the global GDP growth is forecasted to be at 3.3% in 2025 and 2026, with potential downside risks due to the ongoing geopolitical conflicts. Meanwhile, the United States has returned to America-first policies under President Trump’s second administration. The United States has imposed tariffs on China, Canada and Mexico, triggering retaliatory measures from these countries. The ongoing tariff disputes could disrupt global supply chains, impact the shipping sector and charter rates, as well as drive inflation higher. This could slow the easing of monetary policies and hinder economic growth. SHORT TO MEDIUM TERM MEDIUM TO LONG TERM According to the IMF’s World Economic Outlook (Jan 2025), global GDP growth for 2024 is at 3.2%, slightly lower than in 2023 at 3.3%. Global economic recovery remained moderate amidst China’s economic slowdown and the high interest rates environment. In late September, the US Federal Reserve cut interest rates by 50 basis points, marking its first rate reduction since 2020. Towards the end of the year, the Federal Reserve implemented an additional 50 basis points rate cuts, bringing the rate to 4.5%. The decision to reduce interest rates was mainly due to stabilised global inflation and to encourage economic growth. The decision also paved the way for monetary easing across major central banks. What Happened in 2024 US Federal Funds Rate 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Sep-19 May-20 May-21 May-23 May-22 May-24 May-25 May-26 Jan-20 Jan-21 Jan-23 Jan-22 Jan-24 Jan-25 Jan-26 Sep-20 Sep-21 Sep-23 Sep-22 Sep-24 Sep-25 % Source: US Federal Reserve (January 2025) forecast Key Capital: Material Matter: Risks: Financial F Financial Performance Energy Transition and Decarbonisation Risk Financial Risk Project Delivery Risk Geopolitical Risk Energy Transition and Decarbonisation Risk Financial Risk Health, Safety, Security and Environment Risk Project Delivery Risk Geopolitical Risk Key Capitals: Material Matters: Physical P Financial F Health and Safety Values, Governance and Business Ethics Financial Performance Sustainable Supply Chain Security Risks:
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