Troubled waters ahead for entrepreneurs

Date: 16 August, 2019 - Blog

This is not new, global geopolitics has been particularly complex and potentially explosive in the past couple of years

In order to remove the often-seen bias judgment, we sometimes use – and refer in our publications – to the Geopolitical Risk Index GPR. This highly regarded index counts the occurrence of words related to geopolitical tensions in leading international newspapers. No surprise, it is still flying higher than in past years / decades.

But other sources of uncertainty, i.e. economic ones, have also emerged lately. Hard Brexit, Trade / Currency war, snap Italian elections, central bank’s independence, etc. There also exist an interesting index capturing it. Interestingly, it encompasses both developed and emerging countries since 1996. It relies on the Economist Intelligence Unit report, a leading firm in the field of country intelligence. It namely proved valuable in gauging the level of ¨heat / stress¨ that private sector / firms actually feel. In this respect, this is in interesting advanced indicator for investment / capex decisions.

According to Ned Davis Research, policy uncertainty has played an increasingly larger role in macroeconomic and investment performance. Indeed, elevated uncertainty has historically been correlated to sustained global economic decelerations and sub-par equity market performance.  

Populist leaders – à la Trump, B. Johnson or M. Salvini – have markedly increased the actual political and economic ¨noise¨. Recurring tensions between the US and China too. The three of them are actually entering electoral campaigns. Odds are significant that they will rather radicalize their messages and actions, in order to galvanize their voters’ base. The latest prints of the GEPUI index – at around 300 – are clearly breaking-out out of its historic range. It is hard to imagine how it could recede in the coming months.

The debate over ¨QE for the people¨, a Green New Deal, dismantling Maastricht treaty rules, MMT has just started. It probably needs a crisis to accelerate… This may reverse the current gloom and improve sentiment.

We are entering a High Frequency Noise period

Entrepreneurs will remain reluctant to set constructive medium-term plans / strategy

Global prudence, investment restraint, cost controls will continue to dominate

Capex, trade will remain very weak in the foreseeable future

  • The ongoing deceleration of world economy will continue for some more months at least
  • Markets need much bolder action than more accommodative monetary policy to regain confidence and resume their uptrend