Elections Amid Rising Mistrust and Anxiety
In robust democracies, elections are occurring against a backdrop of rising mistrust in government, deep societal divisions, and anxieties over economic prospects. Even in countries with flawed democratic processes, leaders remain sensitive to the economy’s health. The outcome of these elections will have far-reaching consequences, shaping crucial policy decisions related to factory subsidies, tax breaks, technology transfers, artificial intelligence development, regulatory controls, trade barriers, investments, debt relief, and energy transitions.
A surge in electoral victories for populist leaders could prompt governments to tighten control over trade, foreign investment, and immigration. Stagnant incomes, declining standards of living, and growing inequality have fueled skepticism about globalization in many places. This trend raises concerns about a “vicious cycle” since the election of right-wing nationalists is likely to weaken global growth further and impact economic fortunes negatively.
Implications for Global Economy and Key Elections
The upcoming elections hold significant implications for the global economy. Here are the key elections and their potential ramifications:
1. Mexico:
The election in Mexico will influence the country’s approach to energy and foreign investment. Currently, Mexico is the world’s fastest-growing economy and aims to compete with China as a global manufacturing hub.
2. United States:
The U.S. presidential election holds the most substantial implications for the global economy. Former President Donald J. Trump, the likely Republican candidate, has advocated for protectionist trade policies and proposed imposing a 10 percent tariff on all imported goods. His combative approach would inevitably lead to retaliatory measures by other countries. Mr. Trump has also signaled a possible withdrawal of support for Ukraine, a more confrontational stance toward China, and a step back from America’s partnership with Europe.
3. Global Shifts in Domestic and Foreign Policies:
The consulting firm EY-Parthenon highlights the potential for far-reaching shifts in various policy areas, including climate change, regulations, and global alliances, as a result of these elections.
Meanwhile, global growth remains slow, and many developing countries face the risk of defaulting on their sovereign debts. On a positive note, falling inflation rates are prompting central banks to reduce interest rates. Nevertheless, as the world fractures into rival blocs and uneasy alliances, security concerns are likely to play an increasingly significant role in economic decision-making.
China, India, and Turkey have increased their purchases of Russian oil, gas, and coal following Europe’s reduction in imports due to Moscow’s invasion of Ukraine. This shift, along with rising tensions between China and the United States, has led Washington to provide substantial incentives for electric vehicles, semiconductors, and other strategically important industries for national security.
Increasing Volatility in a Dispersing Geopolitical Landscape
Smaller players such as Yemen, Hamas, Azerbaijan, and Venezuela are seeking to change the status quo. These conflicts, though smaller in scale, can disrupt global supply chains unexpectedly. Geopolitical power is becoming more dispersed, contributing to heightened volatility, according to Courtney Rickert McCaffrey, a geopolitical analyst at EY-Parthenon.
The United States recently announced plans to expand a military coalition to safeguard ships passing through a critical commercial pathway responsible for 12 percent of global trade. While the impact of these conflicts thus far has been limited, continuing volatility in geopolitical and geoeconomic relations remains a major concern for risk officers in both the public and private sectors, according to a midyear survey conducted by the World Economic Forum.
With ongoing military conflicts, extreme weather events, and important elections on the horizon, it is likely that 2024 will witness more of the same challenges.