Centrist political parties are losing ground at an unprecedented rate, as voters across advanced economies turn from the traditional left/right political axis to more extreme populist or liberal ideologies – from Brexit in the UK to Donald Trump’s election in the US to the rise of nationalist parties across Europe. Here we assess the causes of this unparalleled shift – and the implications for the global economy and financial markets if the Policies of Rage begin to be enacted.
The first signs of voter rejection of centre-left and centre-right parties emerged in the early to mid-2000s but have only become clear following the 2008/09 global credit crisis as the move away from the centre accelerated. The centre vote share has collapsed across advanced economies by an average of 12% since the 1990s and by more than 50% in Austria and Greece – a trend that is unprecedented, even during the Great Depression years.
Amongst advanced economies, only Japan and commodity-exporting countries (Australia, Norway, Canada and New Zealand) have so far avoided a sharp drop in the centre vote share. But this could quickly change if commodity prices fail to recover.
Source: Barclays Research
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As might be expected, there is evidence that falling support for the political centre is related to stagnant median incomes, and the impact of trade and immigration on middle earners.
But the deepest cause of voter rage is a sense of political disenfranchisement which has fuelled the almost universal campaign pledge by major alternative parties to reclaim sovereignty – see graph.
This loss of faith in governments and a sense that ordinary citizens have no say has been compounded by the trend towards political globalisation and the delegation of sovereignty to supranational organisations (the EU) and intergovernmental arrangements – both present (World Trade Organisation, North American Free Trade Agreement) and future (Trans Pacific Partnership).
Disenfranchisement appears to be more widespread among lower-education citizens who tend to provide the greatest base of support for alternative parties.
*The 17 parties and candidates surveyed are: Austria: Freedom Party (FPÖ), Belgium: Vlaams Belang (VB), Denmark: Danish People’s Party (DF), Finland: Finns Party, France: Front National (FN), Germany: Alternative für Deutschland (AfD), Greece: Coalition of the Radical Left (Syriza), Italy: Five Star Movement (5SM), Lega Nord (LN), Netherlands: Party for Freedom (PVV), Spain: Podemos, Sweden: Swedish Democrats (SD), Switzerland: Swiss People’s Party (SVP), UK: UK Independence Party (UKIP), Jeremy Corbyn, US: Donald Trump, Bernie Sanders.
Notes: Average response from 0 (‘Not at all’) to 10 (‘Completely’) to question: ‘Political system allows people to have a say in what government does’ post-stratification weights used for country-level responses.
Source: European Social Survey Round 7 Data, Norwegian Centre for Research Data, Barclays Research
Globalisation and, in particular, its effects on trade and immigration, is a fundamental cause of voter discontent. Among the countries we studied:
An implication of the Policies of Rage is a reversal of the process of globalisation that has occurred since World War II. Anti-trade and anti-immigration policies explicitly aim to reduce globalisation by making it more costly. The pursuit of sovereignty may also indirectly deglobalise by making it more difficult to reach accord on international trade agreements and regulation.
Less harmonisation of trade would mean slower pace of trend economic growth, most heavily affecting emerging markets.
Restrictions on movement of labour and goods would drive up labour costs and prices and therefore increase ‘cost-push’ inflation. However, export-dependent emerging markets could see inflationary pressures fall as overseas demand for goods declines.
Fiscal policy would be mixed for advanced economies, but would need to be more expansionary for emerging markets to compensate for trade losses.
Global savings should fall as income is shifted to those most likely to spend it, putting further pressure on interest rates to rise. But the pattern should shift, ironically, to decrease advanced economy current account balances relative to emerging markets.
Interest rates - Global nominal interest rates should rise, more so in major economies; differences in rates should increase.
Currencies - Currencies in the G10 would generally outperform as emerging markets suffer the impact of de-globalisation. Individual currency performance is also likely to diverge far more.
Commodities - Reduced global demand would dominate the outlook for commodity prices and have serious economic consequences for commodity-producing economies.
Capital markets - Equities and corporate bonds would face a poorer outlook as revenue growth slows and corporate margins are squeezed. But performance by country and sector may vary greatly as deglobalisation – like globalisation – creates its own winners and losers.
Volatility - More extreme deviations in returns are likely as markets react to the Politics of Rage, but a long-term increase in volatility is unlikely.
The Politics of Rage are playing out over a multi-decade horizon. Elections in 2017 in the Netherlands, France and Germany offer numerous opportunities for non-centrist politics to build momentum. Although the Policies of Rage have not yet been enacted in many countries, many of their de facto effects are already being felt:
The Politics of Rage is not a passing phase. Even if non-centrist parties fail in their electoral bids in the next year or so, they are likely to remain a powerful political force. This will remain the case until the sense of disenfranchisement among voters and the negative impacts of globalisation are addressed.
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