The volatility and political risk of 2016 look set to continue, with most regions affected, say risk analysts. Timothy Conley reports.

Global risk and consulting firm Verisk Maplecroft predicts in its Political Risk Outlook 2017 report that Donald Trump’s presidency could contribute to global instability. The report is based upon predictive analytics as well as forecasts from more than 30 individual experts.

According to the report, Mr Trump’s America First platform, including his protectionist stance on US companies, could have a significant effect on global trade. The report predicts that his brand of ‘economic nationalism’, which combines limited regulations and heavy protectionism, will intensify volatility in non-US markets, most notably Mexico.

“Mexico will take the brunt of any protectionist measures, which are likely to push the country towards recession,” says the report. Devastation to the Mexican economy would increase anti-US sentiment there as well as in Brazil and Argentina, which could lead to a revival of left-wing populist movements in South America.

The analysis says Mr Trump’s decision to back away from the Transpacific Trade Partnership (TPP) has also given China the opportunity to assume greater geopolitical leadership within the Asia-Pacific region. In particular, it could benefit China’s proposed Regional Comprehensive Economic Partnership (RCEP), which would constitute the largest free trade bloc in the world.

Since, unlike the TPP, “states [would] not be compelled to strengthen labour rights… environmental standards, or curtail privileges afforded to state-owned enterprises under RCEP”, it is likely that operational risks in Asia-Pacific countries would heighten.

The report also predicts Beijing will take an increasingly firm stance regarding its ongoing territorial disputes in the South China Sea as a way to demonstrate its regional leadership. In the past, the US has assumed a neutral position with respect to these territorial claims, but Mr Trump’s administration has expressed a desire to take a more confrontational approach.

Verisk Maplecroft projects an “87% chance of a dispute occurring between the US and China” over the South China Sea. Threats and displays of force are to be expected between the US and China, while the report states that the use of military force “cannot be ruled out entirely”.

“Governments facing heightened instability are prone to erratic policy-making, which can undermine investors’ trust in key institutions of the state,” said Guy Bailey, Verisk Maplecroft head of analytics.

This article is sourced from fDi Magazine
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