The political shocks of 2016 were merely a foretaste of things to come as the world enters a “new era of political risk”, according to a report.
Verisk Maplecroft’s Political Risk Outlook 2017 said a Trump presidency, Brexit and a more assertive China presented a “paradigm shift in political risk that will create greater uncertainty for investors the world over”.
The report said all regions are more likely to experience a decrease in government stability over the next three years, with developing markets most susceptible to negative shifts.
However, the report said Europe would have to adapt the most, with Brexit leaving the UK facing a 69% chance that the stability of the government will deteriorate by 2019. “France, Germany and Italy also display highly uncertain outlooks, but the trajectory of risk in these countries could go either way depending on the success of far-right parties and their populist agendas in upcoming elections.”
Guy Bailey, head of analytics at Verisk Maplecroft, said: “Governments facing heightened instability are prone to erratic policy-making, which can undermine investor’s trust in key institutions of the state.
“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.”
Verisk Maplecroft said it expected the Trump presidency “to be characterised by multiple, competing power centres and impulsive decision-making that will raise the US political risk profile and inhibit a predictable operational environment”.
“Trump’s brand of economic nationalism will be framed by tax and regulatory relief and heavy protectionism,” said the report.
“The administration will also 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 degree of disruption to business will depend on how extreme the policy path is.”
The report said other risks included heightened tensions in the western Balkans if Russia chooses to destabilise the region “as it seeks to contain further Euro-Atlantic integration”.
Verisk Maplecroft said Trump’s dumping of the Trans-Pacific Partnership trade deal gave China an opportunity to increase its influence and the South China Sea remained a potential flashpoint. A tough stance against Iran could hit companies looking to invest there and increase the risk of the nuclear deal unravelling.
The report also said 2017 could “spell the end for Africa’s geriatric dictators”. “Low oil prices, failing economies and intensifying civil unrest are raising the chances of an Arab Spring-type event in Central Africa’s oil producers, including Gabon, Equatorial Guinea and Angola.”
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