Political And Geopolitical Predictions For 2014

The year 2014 promises to be busy, politically, as many emerging markets (EMs), such as Bangladesh, Brazil, Colombia, Egypt, India, Indonesia, South Africa, Thailand, and Turkey, as well as the European parliament and the United States of America, will hold important elections.

For the most part, we do not expect any anti-systemic turmoil in these countries. In the cases of India and Indonesia in particular, investors will be hoping that future governments will be able to revive the process of economic reform, which has lost momentum in recent times. On the international stage, the main events to watch are the ongoing rapprochement between the US and Iran, and Asia's maritime disputes, principally between China and Japan, but also between China and the Philippines and Vietnam. Meanwhile, the Korean Peninsula could see more tensions, mainly because of signs of a power struggle in the North.

Overall, it could be argued that the world's main political and geopolitical risks were largely contained in 2013, despite sudden outbreaks of unrest in Brazil, Egypt, Thailand, Turkey, and Ukraine. One of the political 'surprises' of 2013 was the degree to which government surveillance of the internet and telecommunications, as well as governments spying on friendly governments, became a public policy issue, thanks to revelations from former US National Security Agency contractor Edward Snowden. However, by the end of the year, the 'outrage' had dissipated somewhat.

Meanwhile, we continue to highlight two broad themes below:

Theme 1: EM Policy Risks Still In Focus

The key theme we raised in our mid-2013 Global Political Outlook, published on June 28, was policy missteps in emerging markets - a topic which we believe will remain in play for the foreseeable future. Essentially, we increasingly subscribe to the view that the best years for EMs, in terms of rapid economic growth and the pace of improvements in living standards, are over, and that governments will face greater challenges in managing the expectations of voters, who have become accustomed to the economic rewards of the 2000s. At the same time, many voters will be chafing at the relative absence of benefits for themselves during the boom years. These two phenomena mean that we will occasionally see outbursts of public unrest in EMs. In Europe, meanwhile, political leaders will struggle to find a right balance between fiscal austerity on the one hand, and pro-growth policies on the other.

Theme 2: The United States' Diminished Ability To Shape The World

The second important theme is the United States' diminished ability to shape global events. President Barack Obama's decision in September 2013 to refrain from airstrikes on Syria in favour of a Russian-brokered diplomatic initiative to dismantle Damascus's chemical weapons reflects a greatly reduced willingness on the part of the American political establishment and voters to become embroiled in another foreign conflict, especially in the Middle East. This reflects weariness after more than a decade of war in Afghanistan and Iraq, which has claimed more than 6,000 American troop lives, and tens of thousands more injured.

We still believe that the US has the wherewithal to intervene militarily in extreme scenarios, such as a major North Korean attack on the South, or potentially against Iran's nuclear programme if negotiations fail, but for the most part, Washington will avoid foreign military entanglements. The risk is that anti-American states such as North Korea and Iran, as well as competitor great powers Russia and China, and even US allies, will perceive America as weak. This could result in Tehran, Pyongyang, Moscow, and Beijing acting more assertively in areas of interest to them, thus leading to more regional tensions. That said, we do not expect the current American war-weariness to last indefinitely. It is quite possible that the next US president will seek to reassert America's global leadership, and that by that time, American society will be recovering from the impact of the Afghan and Iraq wars.

Hotspots Worth Watching

Iran-US rapprochement: Without doubt, this is one of the big geopolitical developments to watch. A definitive breakthrough would end (or greatly reduce) 35 years of animosity between Washington and Tehran and thus transform the Middle East. And yet, if the rapprochement fails, attitudes on both sides could harden, increasing the risks of eventual conflict.

China-Japan tensions: On December 26, 2013, Japanese Prime Minister Shinzo Abe paid a controversial visit to the Yasukuni Shrine in Tokyo, where several indicted war criminals are enshrined alongside Japan's war dead. Abe's visit once again raised tensions with China, as well as South Korea, both of which regard Abe as an unrepentant nationalist and militarist. Going forward, we cannot preclude a clash or skirmish between Japan and China over the disputed Senkaku/Diaoyu islands in 2014.

North Korea power struggle: We believe that the recent execution of Jang Song Thaek, the country's de facto number two man, reflects an ongoing power struggle, as leader Kim Jong Un seeks to consolidate his authority. That being the case, North Korea could become considerably more unpredictable in 2014, both in its domestic politics and its behaviour towards the South.

Naturally, there will be plenty of other countries and events worth watching, and we will remain vigilant towards them at all times.

We outline these in our full Global Political Outlook, Transformative Events Approaching In 2014, which is available to subscribers at Business Monitor Online.

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