Andy Langenkamp is a global policy analyst for ECR Research.
Though 2014 was a year of upheaval, there were some good trends. The U.S. economy appears to be on the right track, though not all the data is reliable. The British economy is growing steadily. Markets are confident in the economic aspirations of new leaders in Indonesia and India. China's growth seems to be on schedule, though many analysts fear inflated, unsustainable asset bubbles.
However, distress in the eurozone continues, and there are questions about the will and capability of Prime Minister Shinzo Abe to put the Japanese economy back on track. Further, analysts worry about the economies of three out of the five so-called BRICS: Brazil, South Africa, and Russia.
Politics are a determining factor in the economic developments and prospects for the aforementioned countries. Many of the major crises that broke out this year - in Ukraine, Syria and Iraq, Gaza, and Hong Kong - were connected to local politics and to geopolitics. It is thus no accident that most experts regard poor governance as the biggest threat to global security.
In what Gideon Rachman describes as the "democratic age," even leaders who are brilliant geopolitical strategists can easily be thrown off track by financial markets, social media, populist movements, and terrorist acts. The world seems more complex and obtrusive than ever before. Borders - and not just physical ones - are porous. People, capital flows, criminality, information, weapons, ideas, pollution, and epidemics cross the globe at great speed. As Rachman writes, "These days a would-be grandmaster, staring at the global chessboard, is liable to find that the pawns have started moving around on their own."
Although this makes it harder to predict future events, it is still important to have a feeling for the geopolitical and geo-economic questions of greatest importance to financial markets in 2015.
• In the Middle East and North Africa, arrangements made in the first half of the 20th century - and guaranteed by Western powers - are under internal and external pressure. The reshuffling of power relations and challenges to established borders will end no time soon.
• Liberal democracy has been under stress since the eruption of the financial crisis in 2007-2008. History professor Mark Mazower wrote that, "by discrediting the more mythical idealisations of the market, it has encouraged the restoration of state power as a goal in itself. This programme is easily harnessed by authoritarian leaders in the name of national sovereignty and democracy." In some cases, we are seeing transitions from moderate authoritarianism to outright totalitarian rule. Conditions have hardened in countries such as China, Hungary, and Turkey, but most of all in Russia. Tensions between these countries and the West could increase.
• Some 20 countries in Africa are already failed states, or are heading in that direction. These countries are threatened by the spread of disease, extremism, and violence. Not every country is important to the global economy. However, resource-rich states such as Nigeria, Angola, South Africa, and South Sudan are highly relevant to the financial markets. Instability can easily spread from one African country to another.
• The restructuring of the security and economic order in Asia continues apace. This affects the relations between China and the United States, which remains deeply involved in the region - in Japan, South Korea, Taiwan, the Philippines, and elsewhere. Maritime tensions between China and other Asian countries undermine regional stability, while discord between Japan and the victims of Japanese aggression in World War II remains a concern.
• Political and economic power continues to shift from West to East and from North to South. In a relative sense, the Americans are losing power. This is all the more true of Europe. Economic data indicates the Continent's dwindling importance. In 2007, approximately 40 percent of foreign direct investment occurred in Europe. By 2012, that had fallen to 20 percent. Ten years ago, 600 of the 2,000 largest companies on the stock exchange were European; now there are fewer than 400.
Markets over the past year seemed unperturbed by geopolitical crises or setbacks in the political economy - records were broken continuously. However, market sentiment is fickle. It could change as the U.S. Federal Reserve tightens its belt. There is also waning confidence in the power of central banks, worries about slowing Chinese economic growth, and general political instability. Overall, despite steady growth in the U.S. and British economies, the emergence of other economies, and the added boon of low oil prices, the prevailing trends and tendencies discourage risk-taking.
(AP photo)
