Populism could have been word of the year for 2016. And, as 2017 has rolled out, geopolitical risk has remained a hot topic—especially when it comes to countries such as the U.S. and Britain.
In his most recent industry letter, Ian Russell of the IIAC highlights how political movements have taken hold across the globe due to sweeping structural change that has persisted despite weak economic growth.
Russell recently attended Asia’s Financial Forum and, in his letter, notes global experts are concerned about issues such as rising income disparities, persistently high unemployment and increased immigration flows. These have led to a “growing disconnect between the agenda of the political elites and the concerns of the governed,” he adds, noting globalization and technological progress are also factors.
Mohamed El-Erian, chief economic advisor at Allianz and a keynote speaker at the conference, highlighted how the new normal for investors continues to be a world of low growth and interest rates, leading to weak investment, says Russell. El-Erian blames “the exclusive dependence on monetary policy to provide economic stimulus,” which he says has been a product of political gridlock.
Says Russell, “[El-Erian] argued that 2012 was a pivotal year for the U.S. Federal Reserve. Congress was recognized as hopelessly gridlocked […] [so the] Fed took on the full burden for supporting economic recovery.”
But this has to change, says Russell, in the U.S. and elsewhere. As El-Erian stressed, this so-called new normal is “unsustainable” and the following measures are needed to encourage a proper recovery:
- more pro-growth policies;
- low personal and corporate tax rates, and wholesale tax reform;
- active engagement of public and private partnerships for infrastructure spending; and
- widespread deregulation.
Why should you care?
Canada isn’t immune from geopolitical risk, warns Russell, and that must be monitored.
In his letter, Russell calls for the same measures as the global experts. He says the government’s current infrastructure spending plans are “unlikely to have a positive impact on growth in the near term.”
Two things to watch out for, he adds, are persistent weakness in Canada’s non-resource export sector and a federal public debt that grows too much and too quickly. Read the full letter for more on Canada’s path forward.