Populist rise threatens global markets

16-Feb-2017

By Sarah Kendell

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The rise of populist parties in several key developed markets could prompt further slowdowns in global growth as globalisation shifted into reverse, according to Standard Life Investments.

Speaking at a media briefing in Sydney yesterday, Standard Life chief economist Jeremy Lawson said globalisation had become a scapegoat in many Western economies for social and structural changes that had led to stagnant living conditions for the middle class, and as a result governments risked losing support for free trade and taking the global economy further backwards.

“Unless centrist governments find a way to reconcile open markets with more broadly distributed and stable growth, the support of globalisation will continue to fade,” Lawson said.

“I see politics heading in the wrong direction in developed markets in the near term, which means in the best case we get a more China-led globalisation, and in the worst case globalisation retreats further – if that happens in an environment where we’ve already seen growth slow, you take away another pillar of global growth.”

Protectionist policies adopted by populist movements in the United States and United Kingdom were unlikely to solve the economic problems of the past three decades, which had seen middle-paid jobs shrink and declining income for those in the 80th to 95th percentiles of the world’s income earners, he said.

“Over the last 25 years, import content in each country’s exports has increased very substantially, so if an individual country imposes trade barriers on another country through say an America-first trade strategy, that will also have implications for their exports – the idea that we can separate it in an easy and harmless way is a fantasy,” he said.

“Productivity growth has already been weak for a number of years now for structural reasons, so if you add in some sort of pullback in globalisation, you think low growth and a low-return environment, which has implications for investor returns and the sustainability of retirement savings.”

If governments sought to impose trade barriers rather than deal with the impact of globalisation through redistribution of wealth, that could further affect living standards and domestic economic growth, he added.

“Governments face some very difficult choices in the next few years and we are at a fork in the road – they either address the seriousness of this challenge and take the sort of reforms necessary to deliver strong growth and make sure it’s shared, or if you can’t do that, the risk increases that you will get more populists being elected that offer convenient excuses but no real solutions,” he said.

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