So you think 2016 was a messy year? You ain’t seen nothing yet.
A new outlook report by risk analytics firm Verisk Maplecroft predicts that all global regions are likely to experience a decrease in government and economic stability in the next three years – from rich developed nations to emerging markets.
“While the outlook is not unremittingly bleak, the outputs of the model suggest that 2016 was not a one-off – investors should brace for more shocks,” said Guy Bailey, head of analytics at Verisk Maplecroft.
Reading the report leaves an impression that we are heading for a perfect storm – with Valdimir Putin confronting the EU and NATO, Brexit shooting down confidence in European business, the White House plagued with impulsive decision-making and China’s Xi Jinping stepping up as the new global strongman.
It continues: Mexico is heading for recession, the rule of law is being eroded in Bosnia, tensions are increasing in the South China Sea and Recep Erdogan is tightening his grip on power in Turkey. Add to that Chinese labour protection is getting worse and left-wing populist parties have surfaced in South America.
Make no mistake, the report concludes: more shockwaves are expected as the world enters a new era of political risk under the shadow of a Donald Trump presidency, Brexit and a more assertive China.
While the Middle East, North Africa and sub-Saharan Africa are the areas most exposed areas to hazard, businesses and investors in the traditionally stable markets of Europe are the ones that will have to adapt most.
“Governments facing heightened instability are prone to erratic policy-making, which can undermine investors’ trust in key institutions of the state,” Bailey states.
“The Trump administration will take radical approaches, including the rigorous enforcement of trade rules and targeted tariffs on specific imports. This could spark reciprocal actions from major trading partners, like Mexico and China, and engender a protectionist wave through the global trade regime”
Unsurprisingly, Donald Trump is the center for much of this concern. The analyst firm expects the White House to be characterized by multiple, competing power centers and impulsive decision-making that will raise the US’ political risk profile.
“The [Trump] administration will take radical approaches, including the rigorous enforcement of trade rules and targeted tariffs on specific imports. This could spark reciprocal actions from major trading partners, like Mexico and China, and engender a protectionist wave through the global trade regime”, the report said.
Adding to the turmoil is Trump’s dumping of the Trans-Pacific Partnership (TPP) trade deal, and the rise of the Beijing-led Regional Comprehensive Economic Partnership (RCEP), which ultimately represents “a significant geopolitical win for China and major setback for US influence in Asia.”
Other outlook reports are not much more upbeat. A new survey from the World Economic Forum – which polls 750 of the group’s members – said that weapons of mass destruction now ranks as the greatest concern among global leaders.
It added that a rise in nationalism and less cooperation among world powers is raising the risk of global conflicts.
“As technological, demographic and climate pressures intensify the danger of systems failure, competition among world powers and fragmentation of security efforts makes the international system more fragile, placing collective prosperity and survival at risk,” the WEF’s annual risk report states.