It’s been two years since our initial research on populism, and populist-inspired policies continue to advance today on multiple fronts. As we see it, investors should expect more of the same ahead—influencing everything from global economic growth and inflation to policies directed specifically at the corporate sector.
Populism has turned out to be more deeply rooted than mere residual anger from the global financial crisis of 2008–2009—or the handling of the European sovereign crisis. Economies have recovered further over the past couple of years, but politics and policy haven’t returned to “normal.” In our view, investors should think of populism as a lasting structural theme—driven by rising inequality, stagnant incomes, fears of disruption and a sense that the political system isn’t delivering.
Disillusionment Continues to Grow
Populists now rule in Italy, which isn’t surprising given the country’s poor economic performance under the European Monetary Union. But even in Germany, recent state electoral results show more deterioration of the political center in favor of both the left and the right.
The erosion of the center is picking up across emerging countries, too, with populists recently elected to lead Latin America’s two biggest economies. Andrés Manuel López Obrador, from the left side of the political spectrum, was elected in Mexico last July; from the right, it was Brazil’s Jair Bolsonaro in October. The Brexit saga continues to roll on, and US midterm elections fell short of the “blue wave” revolt that some expected.
All in all, it seems safe to say that concerns about what populism might bring next are only intensifying.
Assessing Advances in Policy Channels
How effectively have these political forces translated into tangible actions? When we revisit the framework from our original research, we find that populism has continued to move forward—but to different degrees in each of three key channels (Display).
1) Raising the drawbridge. We’ve seen plenty of evidence of advances in this channel, with policies becoming more national and less global. There’s been trade conflict between the US and its partners, including China, Canada and Mexico. We’ve seen withdrawals from multinational arrangements, such as the Trans-Pacific Partnership and the Paris Agreement. Brexit and anti-Brussels sentiment fit the mold, too.