The world has entered into its first year of "geopolitical recession" since World War Two, where there is a total downturn in politicians being able to deliver to a global scale, resulting in what has been dubbed a G-Zero – a world without leadership and a world characterised by a “growing vacuum in global governance”.
The global order that prevailed since the end of the World War Two had reached a turning point, wherein the “leaders of the old world were exhausted and new leaders had not yet emerged”, creating a vacuum, said global political risk research and consulting firm Eurasia deputy CEO and Europe, Middle East and Africa MD Sean West on Thursday.
West was speaking at a KPMG-hosted discussion on the impact of global politics, in a presentation in which he noted that “this is a unique moment of geopolitical creative destruction – the new world is being born in front of us.”
His comments aligned with Eurasia’s ‘Top Risks’ report, released earlier this year, which cited that a breakdown in long-standing domestic, regional and international political equilibria was making policymakers both “less able and less willing” to collaborate internationally.
The report identified the most challenging political and geopolitical trends and stress points for global investors and market participants this year, flagging “Independent America” as the number one risk, with President Donald Trump abdicating the country’s role as global leader, with “repercussions around the world”.
“The triumph of America First as the primary driver of foreign policy in the world's only superpower marks a break with decades of US exceptionalism and belief in the indispensability of US leadership,” the report had noted.
Eurasia had predicted a new world order earlier this year, pointing out that until a new model of global governance emerges, the world will remain in a period of uncharacteristic political instability.
West’s presentation was driving home the fact that there are few places where politics will have a positive impact on the macro business environment over the next 6 to 24 months, citing events in the US, the surprising uncertainties around Brexit and the rise of China, besides others.
Geopolitical recessions last longer and cut deeper than economic recessions, and "country risks" from politics are no longer an emerging market phenomenon – "it is fully entrenched in developed countries".
The current environment dictates enhanced risk management for business, pointing to the return of both top-down and bottom-up country risks and the necessity for CEOs to become more politically aware and, in effect, “chief political officers”.
Country risk drivers included the US no longer wanting to provide leadership, owing possibly to national security fatigue, economic populism and changing supply chains, along with new President Trump who is slated to use US power to advance US interests.
The rise of China, with its new institutions and alternative architecture to the West, and the challenge of Russia, which is projecting power in the region and taking an asymmetric approach to global projects, were also labelled as drivers of the rising country risk.
Further, technology continued to put job security at risk and stimulate faster political cycles, global communications continued to facilitate polarisation, and migration and immigration without economic or social integration were also all weakening social contracts, West commented, citing the loss of legitimacy for governments, the weakening of already fragmenting regions and the undermining of stability of States, as new communications technologies continued to enhance the ability of “angry citizens to commiserate and organise cyber conflict”.