Dr. Lorenz Weimann
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After the Brexit vote and the victory of Donald Trump in the US, it appeared that a wave of populism was sweeping Western democracies. This worried many investors and economists. Populist economic policies can boost growth and financial markets in the short term, but they also purport uncertainty and volatility, and they rarely result in sound economic management. Moreover, populists’ disdain for checks and balances can weaken pluralist democracies.
Even if populists do not gain power, their ascendancy often allows them to set the agenda, encouraging mainstream parties to adopt more protectionist, interventionist or anti-immigration policies.
Observers heaved a sigh of relief when populists did not prevail in various European elections in 2017. To ascertain whether political uncertainty has peaked, we need to understand what drove populism in the first place.
The financial and economic crisis that started in 2007 surely reinforced existing discontent. The crisis alone, however, cannot explain a longer-term trend of rising populist votes. We look at four underlying trends that, in our view, are fueling disgruntlement and disorientation among voters in Western democracies.
None of these trends show any signs of abating. And while voters may get disillusioned with current populist leaders, we see other factors that could undermine political stability and predictability going forward:
Structural political volatility does not mean that all risks are on the downside. It can be an opportunity for reformist newcomers, for example. But there will be no going back to ‘normal’, in terms of a predictable transfer of power from one mainstream party to another.
This NewsLine is based on a 13-page study which you can find under Research Papers here: https://www.allianz.com/en/economic_research/