“Despite a populist-propelled wave of political tumult, global growth is actually set to outperform expectations in 2017,” says Kenneth Rogoff, professor of economics at Harvard University. The “deep prolonged recession” and slow recovery after the financial crisis have sown the seeds of “a sustained period of more solid growth”.
Nonetheless, “many problems remain”. These include “weak banks in Europe, overleveraged local governments in China, and needlessly complicated financial regulation in the United States”. There is a risk that “a populist turn in upcoming elections in either France or Italy could still tear apart the European Union, causing massive collateral damage to the rest of the world”.
While Marine Le Pen trails in second-round polls, “the unpredictability of an angry electorate, and Russia’s proven capacity to manipulate news and social media”, means that “it would be folly to think that Macron is a lock”.
The political situation “is even worse” in Italy, where “populist candidate Beppe Grillo is leading polls and is expected to pull in about a third of the popular vote”. Even if more moderate candidates win, “it is also hard to know the way forward for Italy, where per capita income has actually fallen slightly during the euro era”.
Meanwhile, “many emerging-market countries are dealing with populists of their own, or in the case of Hungary, and Turkey, with populists who have already turned into autocrats”. Overall, while “the outlook for global growth is improving”, this scenario depends on “sensible policies”, while “populism remains a wildcard, and only if growth picks up fast enough is it likely to be kept out of play”.