Developed world politics are increasingly driving global political risk
With the first round of France's presidential elections on Sunday, global investors again find themselves in the now-familiar position of monitoring the performance of an anti-establishment populist candidate in one of the world's largest and most important economies. Should Marine Le Pen or Jean-Luc Melenchon (or both!)
advance to the second round, global financial markets again will be driven by the populist wave that has swept across the west.
2017 has offered no respite to the rise of anti-globalist populism in the US and Europe. In addition to the French elections, rising populism in the European periphery, upcoming elections in Germany, Brexit, and risks associated with the Trump presidency all weigh on the outlook for the global economy.
The near-term outlook for the impact of politics on the global economic and investment climate in developed markets continues to deteriorate, as illustrated in the chart below. The political trend in developed markets has diverged sharply from emerging and frontier markets, where – despite persistent political crises in Turkey and South Africa – overall political risks actually have stabilized in recent months. Whether developed market political risk will continue to rise will, in large part, be determined by French voters this Sunday.
Alexander Kazan is Eurasia Group's lead emerging markets strategist and also directs the firm's comparative research, including quantitative approaches to political risk.
