5 Dec 2017 10:34am

Political instability shaping the future

For many countries, 2017 has been a year of economic progress says Bronwyn Maddox. But from the UK to the eurozone, the US and Latin America, instability of politics rather than economics is the factor that could have the greatest influence on shaping the future

It has hardly been a quiet year. But for all the turmoil, there have been many economic bright spots – and there are reasons why some might continue through 2018. Uncertainty and risk lies more in the political domain, which could cause upsets that cannot be captured in economic models.

The UK’s prospects at the moment are dominated by Brexit. If you talk to civil servants, they will describe the difficulty of keeping open at least two versions of the future in their preparations. But they will also say that once the destination is clear, given more people, money and time, they can perform the technical acrobatics of getting there. The risks are on the political side – whether there is a deal that Brussels, the cabinet and parliament will accept – and economic, from the cost of business uncertainty and the possible terms of any deal.

The impact on the European Union itself is much less than on the UK, however. There, 2017 has brought a cautious recovery. The eurozone’s problems are not over but the patches look more securely in place than they did just a few years ago, and growth (although recovering from a low base) has exceeded expectations, even if sceptics say that only fuller integration can really address the zone’s weaknesses.

Again, Europe’s main problems are political: the lack of a long term plan for countering immigration from Africa and the Middle East; the rise of nationalism and populism; and the separatist tendencies illustrated by Catalonia.

The European recovery has been underpinned by the strength of the US economy. The stock markets, buoyed by expectations of a substantial programme of tax cuts, may be overstating the prospects both of growth and of that legislation, but the picture painted by monthly figures has still amounted to something better than many thought at the start of the year. To say that uncertainty stems from the political arena, however, is to understate the obvious. That extends too to international relations where the possibility that the US might engage in war with North Korea, nuclear or otherwise, has moved from essentially zero under the Obama administration to something greater.

That problem, perhaps the single greatest threat to international stability, is still for China to solve, as the country with the greatest influence over Pyongyang. That it has not chosen to do so should not be a surprise; Beijing prefers to have an ally over that border rather than a united Korea sympathetic to the US. It has clearly hoped the provocations would simmer down while it concentrates on its two greatest concerns: maintaining political control and economic stability at home, and increasing its influence abroad.
Its economic stability should not be taken for granted. Its central bank has warned that local governments, in calling constantly for loose monetary policy to fuel growth, have helped create asset inflation that may turn out to be a bubble. But in contrast to western democracies, its politics is in a phase of remarkable stability, as premier Xi Jinping consolidates his power, laying claim to the title of the most powerful Chinese leader since Mao Tse Tung.

In the South China Sea and beyond, China has pressed ahead with the “Belt and Road” policy of knitting together strategic investments, using roads, railways and ports to link itself to key developing countries. In Africa, its investment over the past 15 years has, from China’s point of view, been a low-risk experiment and has won it allies. The rerun of contested Kenyan elections has not appeared to give it significant doubt.

It is, in that strategy, showing more concern for its zone of influence than is the US towards Latin America, the region with which it so fitfully engages. This year will have shown growth picking up across the continent from 2016 – with the exception of Venezuela – and a further speeding up expected for 2018. But as with much of the rest of the world, politics is the shadow threatening to blight economic progress.

Bronwen Maddox is director of the Institute for Government and a commentator and broadcaster