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Covid-19 to result in contraction, increased instability and regionalism

15th May 2020

By: Nadine James

Features Deputy Editor

     

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The Covid-19 pandemic is likely to result in increased geopolitical instability, recessions and a shift away from globalisation, speakers said during a May 14 webinar, titled 'Covid-19: Political And Geopolitical Risks', hosted by risk and industry research company Fitch Solutions.

The speakers explained that it had become evident that, in the wake of the pandemic, countries will experience economic contraction, higher unemployment, lower consumption, reduced demand for exports and commodities, rising anti-incumbency, fiscal loosening and reduced scope for reforms.

However, the degree to which each country will experience these phenomena will differ greatly depending on the resources available, as well as the internal political climate.  

Fitch Solutions political risk head Yoel Sano noted that, given the current lockdowns, as well as fears regarding mass gatherings, most countries will remain somewhat stable in the short term, experiencing few, if any political protests, creating a “superficial political stability”.

However, the risk of instability heightens in places where lockdowns are difficult to enforce – such as countries with large informal settlements –  where a lack of resources could result in acts of desperation, and where prolonged lockdowns could result in “unpredictable psychological consequences” and public dissent.  

Further, he noted that “the recovery phase” was when incumbents would face substantial risk. “Governments are already experiencing greater retrospective criticism of their handling of the crisis. People are already questioning what could have been done.”

Further, as lockdowns ease and people return to work, the newly unemployed will see benefits from Covid-19-specfic government schemes and funds contract, which are likely to fuel discontent.

Sano noted that the governments most susceptible to political unrest are those that had already experienced dissent prior to the pandemic.

He explained that the easing of lockdown restrictions could result in an increase in protests, as the Covid-19 crisis will “have exposed even more shortcomings of hitherto ineffective governments”

POLITICAL EXPECTATIONS & TRENDS

Sano noted that the unsustainability of the stimulus measures implemented to stave off the economic effects of the pandemic suggests that, at some point, austerity measures will be implemented, thereby exacerbating inequality and increasing social discontent.

He suggested that debates around healthcare and universal basic income will become more prevalent globally, as both concepts will likely be boosted in the social consciousness.

Fitch Solutions senior political risk analyst Matt Sechovsky noted that some countries could backslide from democracy, as several autocratically-inclined governments had been comparatively successful in reducing infections.

On the other hand, other countries with ‘strong man’ leaders, such as Brazil, the US and Russia had not had as many successes.

“Covid-19 will make border control a more important political issue and the crisis will underscore the risks associated with long global supply chains, especially to and from China,” added Sano.

He commented that greater emphasis on being more self-reliant would likely result in regionalism supplanting globalism.  

Sechovsky cited recent free trade talks between African countries, and in parts of Asia, adding that there was seemingly increased collaboration between ‘sub-regions’ within the European Union, which pointed to a burgeoning trend toward regionalism, even before the current pandemic.

Sano added that the other major shift would be a move away from longstanding alliances toward more “transactional” short-term arrangements, citing the example of Russia and Turkey, which seemed in step on some issues but differed on others.

Both noted that international institutions been eroded in favour of unilateralism, following brazen pushback against international collaboration, from the current US administration in particular.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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