citigroup study on global protests
Post on 23-Nov-2015
5.650 Views
Preview:
DESCRIPTION
TRANSCRIPT
-
Citiisoneoftheworldslargestfinancialinstitutions,operatinginallmajorestablishedandemergingmarkets. Across these world markets, our employees conduct an ongoing multi-disciplinary global conversation accessing information, analyzing data, developing insights, and formulating advice for our clients. As our premier thought-leadership product, Citi GPS isdesignedtohelpourclientsnavigatetheglobaleconomysmostdemandingchallenges,identifyfuturethemes and trends, and help our clients profit in a fast-changing and interconnected world. Citi GPS accesses the best elements of our global conversation and harvests the thought leadership of a wide range of senior professionals across our firm. This is not a research report and does not constitute advice on investments or a solicitation to buy or sell any financial instrument. For more information on Citi GPS, please visit www.citi.com/citigps.
CitiGPS:GlobalPerspectives&Solutions
May2014
TAKING IT TO THE STREETS What the New Vox Populi Risk Means for Politics, the Economy and Markets
TinaMFordham MatthewPDabrowski WillemBuiter RobertBuckland EdwardLMorse
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
TinaMFordham,Managing Director, is the first and only Chief Global Political Analyst on Wall Street. She has been named in the Top 100 Most Influential Women in Finance and the Top19EconomistsonWallStreet.With Citi since 2003, she has pioneered a political science-based approach to investment research, specializing in geopolitics and socio-economic risks as well as focusing on more traditional elections and policy analysis. Ms. Fordham is a memberoftheWorldEconomicForumsGeopolitical Risk Committee, Associate Fellow at King's College Graduate Centre Risk Management, and a member of Chatham House andLondonsKitCatClub. Previously she served as Senior Adviser in the UK Prime Minister's Strategy Unit and Director of Global Political Risk at Eurasia Group. Ms. Fordham earned her Master's in International Affairs from Columbia University's School of International and Public Affairs.
+44-20-7986-9860 | tina.fordham@citi.com MatthewPDabrowskiis a Political Analyst at Citi. A pollster by training, Matt specializes in public opinion research, global political analysis and electoral politics. Matt has managed political campaigns on both the statewide and federal levels and his experience includes research 'in country' in Afghanistan, on behalf of Members of Congress, and with a former U.S. presidential candidate. Matt holds a B.A. degree in political science from St. Bonaventure University and an M.A. in survey research from the University of Connecticut. He is a member of the American Association of Public Opinion Research and the American Political Science Association. Matt has been with Citi since 2012.
+1-212-816-9891 | matt.dabrowski@citi.com Willem Buiter joined Citi in January 2010 as Chief Economist. One of the worlds most distinguishedmacroeconomists, Willem previously was Professor of Political Economy at the London School of Economics and is a widely published author on economic affairs in books, professional journals and the press. Between 2005 and 2010, he was an advisor to Goldman Sachs advising clients on a global basis. Prior to this, Willem was Chief Economist for the European Bank for Reconstruction & Development between 2000 and 2005, and from 1997 and 2000 a founder external member of the Monetary Policy Committee of the Bank of England. He has been a consultant to the IMF, the World Bank, the Inter-American Development Bank and the Asian Development Bank, the European Commission and an advisor to many central banks and finance ministries. Willem has held a number of other leading academic positions, including Cassel Professor of Money & Banking at the LSE between 1982 and 1984, Professorships in Economics at Yale University in the US between 1985 and 1994, and Professor of International Macroeconomics at Cambridge University in the UK between 1994 and 2000. Willem has a BA degree in Economics from Cambridge University and a PhD degree in Economics from Yale University. He has been a member of the British Academy since 1998 and was awarded the CBE in 2000 for services to economics.
+1-212-816-2363 | willem.buiter@citi.com RobertBucklandis a Managing Director and Head of Global Equity Strategy at Citi Research. Prior to that he was a European Equity Strategist at Citi when the team was ranked first in all the major investor polls. Before joining the firm in 1998, he was an equity strategist at HSBC for four years. Prior to that, Robert was a sector analyst, economist and strategist at NatWest Securities, starting in 1989.
+44-20-7986-3947 | robert.buckland@citi.com
EdwardLMorseis Managing Director and Global Head-Commodities, Citi Research in New York. He previously held similar positions at Lehman Brothers, Louis Capital Markets and Credit Suisse. Widely cited in the media, he is a contributor to journals such as Foreign Affairs, the Financial Times, the New York Times, The Wall Street Journal and the Washington Post. He was most recently ranked oneofThe36BestAnalystsOnWallStreetbyBusinessInsider)and#23amongtheTop100GlobalThinkersof2012byForeignPolicy.HeworkedintheUSgovernmentattheState Department, and later was an advisor to the United Nations Compensation Commission on Iraq as well as to the US Departments of State, Energy and Defense and to the IEA on issues related to oil, natural gas and the impact of financial flows on energy prices. A former Princeton professor Ed was the publisher of Petroleum Intelligence Weekly and other trade periodicals and also worked at Hess Energy Trading Co. (HETCO).
+1-212-723-3871 | ed.morse@citi.com
Contributors EricGLee XingXing
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
3
TAKINGITTOTHESTREETS WhattheNewVoxPopuliRiskMeansforPolitics,theEconomyandMarkets AndthosepeopleshouldnotbelistenedtowhokeepsayingthevoiceofthepeopleisthevoiceofGod,sincetheriotousnessofthecrowdisveryclosetomadness.AlcuintoCharlemagne,798A.D.
Itseemslikepoliticalriskisonthefrontpageeveryday:crowdsofprotestorsgathering,arallycallingforindependence,amilitarycoup,orscenesofcivilconflict.Istheremoreunrestglobally,oris24/7mediacoveragecreatingthisperception?Issocialmediatoblame?WethinktheanswertothisquestionliesinbetterunderstandingwhatwecallVoxPopulirisk,anewvariationofpoliticalriskwhichwehavebeentrackingforthepasttwoyears.WedefineVoxPopuliriskasshiftingandmorevolatilepublicopinionthatposesongoing,fast-movingriskstothebusinessandinvestmentenvironment.Inthisreport,CitisPoliticalAnalysisteamdocumentsadramaticandmeasurableincreaseinthenumberofelections,massprotestsandgovernmentcollapsesoverthepastthreeyearsa54%increaseversusthepreviousdecadeaswellasaproliferationofnewandfringepoliticalparties,manyofwhichareanti-establishment.
AlthoughtherehavebeenperiodsofVoxPopuliriskthroughouthistory,thedifferencetodayisthattheseeventsarehappeninginhighincomedevelopedmarketsandmiddleincomeemergingmarkets,manyofwhichhaveenjoyedasustainedperiodofgrowthandimprovementsinlivingstandardsandareintegratedintotheglobaleconomyandfinancialsystem.TheauthorsofthereportthatfollowsbelievethatVoxPopuliriskisastructuralchangeandthatitwillbeariskfactoraffectingboththeinvestmentandbusinessenvironmentfortheforeseeablefuture.
Whatiscausingthischange?TheauthorsbelievethenewVoxPopuliisbeingfueledbygrowingperceptionsofincominginequalityandanxietyaboutglobalization,particularlyamongstmiddleclasses.Indevelopedmarkets,thishasresultedinnewandalternativepoliticalpartieswhicharehavinganimpactonpolicydebateandincreasingtheformationoffragilecoalitionsandreferendumrisk.Inemergingmarkets,thereisagreaterchanceofstreetdemonstrations,rebellionsandsustainedtensionsthatelectionsmayfailtoresolve.Insomecases,localprotestscanbecomeageopoliticalriskalmostovernight.Forpetrostates,afallinpetroleumpricesisleadingtoanoutcryforimprovedgovernanceandamoreequitabledistributionofincome.
Thusfar,companiesandmarketshavebeenabletolocalizepoliticalrisksthankstocontinuedlowinterestrates.Onceratesrise,theimpactofsystemicpoliticalriskscouldgrow.Greaterfragmentation,disruption,andthegeopoliticalimplicationsofmorevocal,morequicklymobilizedpublicopinioncouldstarttoweighmoreheavily.
ApplyingtheassumptionthatVoxPopuliriskisunlikelytorecedeintheimmediatefuture,thisreportexploresitsimpactontheglobalpoliticalenvironment,includingahostofupcomingelectionsin2014and2015,theglobalrecoveryandeconomicoutlook,financialmarketsandkeysectorssuchascommodities.
-
Giving the People What They WantA Risky Business
Shifting and more volatile public opinion Vox Populi is a new structural risk that will generate uncertainty in the business and investment environment.
No
cons
ensu
s
Hal
ted
refo
rms
Fisc
al lo
osen
ing
New
par
ties
Wea
k co
aliti
ons
Pop
ulis
m
Wea
lth t
axes
Ant
i-fina
ncia
l ser
vice
s
Reg
ulat
ion
Pea
cefu
l mas
s pr
otes
t
Nat
iona
lism
/ s
eces
sion
ism
Vio
lent
pro
test
Vio
lent
cra
ckdo
wn
Cou
p d
etat
Civi
l war
RIS
K L
EVEL
TYPE OF RISK
VOX POPULI RISK
-
Australia
Austria
Belgium
Brazil
Canada
China
Colombia
Czech Republic
Denmark
Egypt
Finland
France
Germany
Greece
Hong Kong
Hungary
India
Indonesia
Ireland
Israel
Italy
Japan
Korea
Malaysia
Mexico
Netherlands
New Zealand
Norway
Peru
Philippines
Poland
Portugal
Russia
Singapore
South Africa
Spain
Sweden
Switzerland
Taiwan
Thailand
Turkey
United Kingdom
United States
2011 - 2013
Mass Protests (2011 - 2013)
2000 - 201011 YEARS 3 YEARS
KEYMass protests
Elections
Average
Countries in orange are included in the Mass Protests maps.
Mass Protests (2000 - 2010)
25
15
5
20
10
20
2000
2004
2008
2012
2001
2005
2009
2013
2002
2006
2010
2003
2007 20
11
DM/EM Election & Mass Protests (2000-2013)
Pre-Crisis Average:
Post-Crisis Average:
21.714.1
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
6
Contents VoxPopuliRisk:TheNewPoliticsoftheStreetandtheBallotBox 7WhatIsVoxPopuliRisk?IsitReallyNew?HowdoesitWork? 11TheEmpiricalBasisforVoxPopuliRisk 14SocialMediaFuelsFlashMobDemocracy,butDoesntGuaranteePoliticalTransformation 16VoxPopuliandMacroeconomics:UncertaintyCurbsGrowth 18
VoxPopuliandMacroeconomics:IncomeInequalityFuelsPoliticalEconomyofDiscontent 19
VoxPopuliRiskinDevelopedMarkets:DiscontentisAnti-Reform,andMindtheGenerationGap 22
RiseoftheNEAPs 23ReferendumRisk:HowEuropeanVotesMaySurpriseMarketsandLeadtoPolicyUncertainty 25
VoxPopuliRiskinEmergingMarkets:MassProtestCanBePro-ReformYetMayNotLeadtoChangeinGovernment 28VoxPopuliRiskandMarkets 31VoxPopuliRiskinResourceEconomies:ChallengestotheRentierStates 34VoxPopuliRiskandtheInternationalSystem:ABoostforDiplomacyasaSilverLining? 40TheOutlookfortheFuture 41Appendix:VoxPopuliEventsinDMandEMSince2001 43
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
7
VoxPopuliRisk:TheNewPoliticsoftheStreetandtheBallotBox Judgingbythemoodinglobalmarkets,thefinancialcrisisisover.Allhailtherecovery.Yetitseemslikepoliticalriskfeaturesinthenewseveryday:anotherstreetprotestanewgovernmentcollapsearallycallingforindependencetheoutbreakofcivilconflict.Thepast6monthshavewitnessedthefirstUSfederalgovernmentshutdownin17years,amilitarytakeoverinEgypt,Ukrainessecondrevolutioninadecadeandtheannexationofpartofitsterritory,arecurringcycleofprotestsandelectionsinThailandandTurkey,thecontinuationofSyriascivilconflictandtheperiodiceruptionoftensionsintheSouthChinaSea.Meanwhile,globalmarketshavebarelybattedaneyelashandappeartobepricingthemostlikelyoutcome:riskiseithernotperceived,orignored.
Areinvestorsjustifiedinassumingthateconomicrecoverywilltemperanotherwiserestivepublicmoodandthatsuper-empoweredcentralbankswilltakecareoftherest,includingmoreconventionaleconomicrisks,suchassovereigndebtsustainabilityintheeuroareaperiphery,bankingsectorriskintheeuroareafollowingtheAssetQualityReviewandtheStressTestthatwillreportlaterin2014?Ouranalysissuggeststhattheunconciousuncouplingbetweengeopoliticalriskandfinancialmarketscouldbemisplaced,aswhatwecallVoxPopuliriskanewvariationofpoliticalriskdrivenbyshiftingandmorevolatilepublicopinionhasincreasedmarkedlyoverthepast4years,andislikelytocontinuetogenerateuncertaintyinthebusinessandinvestmentenvironment.VoxPopuliriskisalsolikelytointeractwithconventionaleconomicandfinancialrisktocreateapotentandpotentiallypoisonousbrew.
AccordingtoempricalresearchproducedbyCitisPoliticalAnalysisteam,(whichwebelievetobethefirstofitskind)theyearlyaveragenumberofelections,governmentcollapsesandmassprotests(VoxPopuliriskeventsforthepurposesofthisstudy)haveincreasedaremarkable54%since2011comparedtothepreviousdecade.WeclassifyVoxPopuliriskeventsintofourmaincategories:1)electionrisk2)flashmobdemocracymassprotestrisk3)referendumriskand4)geopoliticalrisk.Incontrasttopreviouswavesofpoliticalrisk,whichwereoftenconcentratedinless-developed,lower-incomecountries,VoxPopuliriskismanifestingitselfinmiddle-incomeemergingmarketandindustrializedcountriesasystemicallysignificantsubsetofsovereignsmorelikelytogeneratewidermarketimpact.
During2011-2014,non-mainstreampoliticalpartieshaveseenanunprecedentedspikeinsupport,sappingpoliticalcapitalfromgovernments,promptingfragilemulti-partygoverningcoalitionsandoftensurprisingmarketsbyproducingunexpectedelectionoutcomes.Atthesametime,massprotestshavesweptaswatheofmiddle-incomeEMdemocraciesdespitetheirgovernmentshavingdeliveredasustainedperiodofgrowthandimprovedlivingstandards.Aroundtheworld,grass-rootspressuresareincreasingtheriskoffragmentationsocial,politicalandevengeographical,asanti-government,anti-establishmentsentimentreachesall-timehighsandtrustininstitutionsplummets.
Vox Populi risk events are on the rise and manifest themselves as: 1) election risk; 2) flashmobdemocracy mass protest risk; 3) referendum risk; and 4) geopolitical risk
An increase in non-mainstream politicalparties.
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
8
Figure 1. The Yearly Average of Elections and Mass Protests in Major Markets Has Jumped 54% in the PostCrisis Environment
Source:CitiResearch
AlthoughwedocumentamarkedincreaseinthenumberofpoliticallygeneratedeventsacrossEMandDMcountriesobservingthatthenatureoftheriskvariesslightlymorevocalmiddleclassesareacommonfeature.Fordevelopedmarkets,VoxPopuliriskisbeingfueledbyperceptionsofgrowingincomeandwealthinequalityanddemandsforchangethatoftenmaskadesiretokeepthestatusquoinpublicresourceallocation,favoringtheagingandthemiddleclass.Inemergingmarkets,streetdemonstrationsaregivingpoliticalexpressiontonewmiddleclassesandplacingincreaseddemandsonpoliticalsystemsandonthecapacityofstateinstitutionstodeliverkeypublicgoodsandservices,includinghealth,transportationandeducation,aswitnessedin2012and2013insomeofthelargesteverprotestsinRussia,Brazil,TurkeySouthAfricaandIndia.Forpetro-states,fallingpetroleumprices(theyhaventreallyfallensignficantly)areleadingtoanoutcryforimprovedtransparencyandgovernanceandaquestinmanycountriesforrevenuestobemoreequitablydistributed.
WhattriggersVoxPopulirisk?Afrequentcatalystistheperceptionofelitecorruption.Timeandagain,evidenceofelitemisbehaviorhasrapidlygalvanizedpublicdissatisfactionacrossincomegroupsandregions,acceleratedbysocialmedia.Yetonesomewhatcounter-intuitivefindinginourresearchisthatcountriesthatexperienceVoxPopuliriskevents,suchaslargestreetprotests,donotnecessarilygoontohavechangesingovernmentattheballotbox.Instead,internaltensionsmayremainhighwithoutachangeinleadership,butelectionsmaybringaweakerleaderwithlesspoliticalcapital.
.drivenbymorevocalmiddleclasses
andperceptionofelitecorruption
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
9
Anotherdogthatdidntbark,istheabsenceoflarge-scalesocialunrestduringthedarkestdaysoftheeurozonecrisis.Althougharapidreversaloflivingstandardsishistoricallyassociatedwithprotestsandrevolutions,ouranalysisunderscoredthefactthatausterity-relatedprotestswerelimited,generallyfailingtomeetCitisdefinitionofamassprotest.Eventheeurozoneperipherycountrieshardest-hitbythecrisishaveseenlimitedsocialunrest.Thisfindingisconsistentwithourlong-standingviewthatpoliticalriskwouldbeexpressedthroughtheballotboxinadvancedeconomies,ratherthanonthestreets.Inthecaseoftheeurozone,thepoliticalcalendarhelpedminimizetheimpactofVoxPopuliriskatthemostfragiletimeformarkets.ThisyearsEuropeanParliamentelectionswillbethefirstmajorpoliticaltest,andareexpectedtoreturnthelargest-everresultsfornon-mainstreamparties,andoftenanti-euroandanti-EUparties.Consistentwiththislogic,countrieswheretrustininstitutionsandthepoliticalprocessislowestaremostatriskofassymetricoutcomes,likerevolutionsandcivilconflict.
Couldareturntogrowthreversethetrend?OurfindingssuggestthattheriseofVoxPopuliriskislinkedtoaconvergenceoffactors,particularlymiddleclassanxietyandconcernsaboutglobalization.Indeed,improvedgrowthprospectsdonotappeartobediminishingthesupportforanti-establishmentparties,suchastheUKIndependenceParty(UKIP)inaneconomicallybouyantUK,whiletheinfluenceoftheTeaPartymovementintheUScontinues,despiteperiodicmediaattemptstowriteitspoliticalobituary.Ifanything,amorepositivegrowthoutlookcould,byreducingtheriskofprotestvotesbringinginagovernmentthatcoulddamageanalreadyweakeconomy,emboldenvoterstemptedtosupportnon-mainstreamalternatives.Whenconsideredalongsidethecontinuationofstubbornlyhighunemployment,webelievetheVoxPopuliphenemenonisastructuralchangethatcouldcontinuetogeneratepoliticaluncertaintyintothenextelectioncycle,with2015seeingaresumptionoftheEuropeannationalelectioncycle.
SohowdomarketsrespondtoVoxPopulirisk?Theanswerappearstobe,withremarkablecalm,indeedhardlyatallfornow.TherehavebeenburstsofmarketvolatilityinresponsetosurprisesbroughtonbyincreasedpoliticalriskbutinvestorsaretreatingVoxPopuliasalocalizedratherthanagloballysystemicissue.Forinstance,theUkraine-Russiatensions,consistentwithourviewthatthemarketscurrentlyonlypricethemostlikelyoutcomebutnottherisks,haveresultedinasharpmark-downofUkrainianassets(currency,stockmarket,sovereignandcorporatedebt)andasignificantmark-downofRussianassets.Thematerialriskthattheconflictcouldspreadanddeepen,resultinginsectoral-leveleconomicsanctionsagainstRussiaandeventhecut-offofgasandoilshipmentsfromRussiatoEuropecannotbeobservedinanyEuropeanassetpricestheeuro,Europeanstockindicesordebtmarkets.Thismightreflectthepalliativeeffectofcheapmoneyascentralbankshavecometotherescueandboostedassetpricesthatwouldnormallybehurtbyhigherpoliticalriskpremiums.Theextraordinarilylowsafeyieldsresultingfromthesesamepolicieshavecreatedahungerforyieldamongprivateinvestorsthatmayhaverenderedthemblindeventosignificantrisks.
Thewithdrawalofcheapmoneycouldmarkareturntopoliticalrisk,butfornowmarketsareseeminglyoverlookingaconfluenceofdevelopmentsthatwould,inaworldwithlessliquidity,havelikelypromptedgreaterconcern.Forcorporations,wethinktheimpactfromoperatinginavolatilepoliticalenvironmentwillbemoretangible,whethermanifestedthroughmorefrequentchangesofgovernment,amorechallenginglegalandregulatoryenvironment,orrecurringmassprotests.
Market reaction to Vox Populi risk has been remarkably calm
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
10
Intermsofitseconomicimpact,VoxPopuliriskfuelsuncertainty,leadinghouseholdstoincreaseprecautionarysavingsandbusinessestolowercapitalformationreducingtwomajorcomponentsofdomesticaggreatedemand.Reducedpoliticalcapitalforleaderscanmeanshort-term,populistpolicymaking,reducedwillingnesstounderakereforms,highertaxesandmoreregulation,sometimesforpunitiveratherthanforsoundeconomicreasons,allofwhichcanresultinnegativeincentivestowork,saveandinvest:ultimatelysuppressingfuturegrowth.
VoxPopuliriskisalsoinfluencinggeopolitics.OnepositivebyproductisaboostfordiplomacyinthecaseoftheSyrianchemicalweaponsdisposalagreementandthehistoricfirststeptowardsadiplomaticbreakthroughonIransnuclearprogramaspublicopiniontiesleadershands,effectivelyprohibitingtheuseofmilitaryforce.Yetamoremuscularisolationismwouldbearwiderimplicationsforglobalalliancesandconflictresolution,likelyaffectingenergysecurityandthenuclearnon-proliferationagenda,amongotherthings.Marketshavegrownaccustomedtothepost-ColdWarpeacedividend,andhistorysuggestsmarketshavetroublepricinginparadigmshifts.
SincethefalloftheBerlinWall25yearsago,companiesandinvestorshaveoperatedinanenvironmentcharacterizedbyrelativestability,theerosionofideologyasadrivingforce,risingintegrationintheglobalfinancialsystemandunprecedentedeconomicexpansion.Inthefirstpost-ColdWarera,politicsandsecurityplayedarelativelyminorroleindisruptingmarketsandtheglobaleconomy.IfVoxPopuliriskcontinuesorworsens,itcouldfuelachangeinthistrendpromptingmorefrequentdisruptionstotradeandcommercialrelationsandchallengestotheglobalsystemaNewNewWorldOrder,wheretherulesofthegameareundernewmanagement.Butwhose?
whiletheeconomicimpacthasshort- and long-term components
On the positive side, Vox Populi risk is boosting diplomacy
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
11
WhatIsVoxPopuliRisk?IsitReallyNew?HowdoesitWork? ThepowerandinfluenceofpublicopinionhasgainedinimportanceandinfluenceintheaftermathoftheglobalfinancialcrisisandadventoftheArabSpring.WedefineVoxPopuliriskasthepresenceofshiftingandmorevolatilepublicopinion,thepressureitplacesonpolicymakersand,throughthat,itsrelationshiptomarkets.CitiResearch1firstcoinedthisconceptin2012toidentifywhatweobservedastheemergenceofanewtypeofrisktotheinvestmentenvironmentandthepolicy-makingsphere.Examplesabound,fromnewtrendsliketheideaofcrowd-sourcing,tosomeofthelargest-evermassprotestsandpopulardemandsforrepresentativegovernmentmanifestingthemselvesinnewregionsoftheworld.Farfrombeinginretreat,democracyappearstobeonthemarchandpeoplepowerontherise.Forbetterorforworse,theconsequencesaregeneratingchangesinnationalpoliticaloutcomes,aswellasintheinternationalsystem,withwidespreadimplications.SociologistCharlesTillyhasnotedthat,ratherthanbeingentirelyseparatephenomena,theseeventsfallalongacontinuumreferredtoascontentiouspolitics.2
Moreglobalizedpublicexpectationsandthedeclineofthepost-WorldWarIIsocialcontractmeansthatconstituentsdemandmorefrompoliticalleadersthaneverbeforeyetthecapacityfortheseleaderstodeliverislimitedinaslower-growthworld.Trustineliteswhetherbusiness,politicalormediaandininstitutionshasdeclined,asnotedbyEdelmanPublicAffairsinitsannualTrustBarometer.Thisdisconnectfuelspopulardiscontent,especiallywhencoupledwithstagnantordeclininglivingstandards.
Inthemeantime,globalequityindicestradeatall-timehighs.Politicalflare-upscaninduceshort-termburstsofglobalmarketvolatility,asweareseeingwiththeUkrainecrisisnow,butthelonger-termimpacthasbeenremarkablysmall.Thismayreflectthegreaterweightingofstockmarketsinmorepoliticallystablecountries.Itmayalsoreflectthesoothinginfluenceoftheultra-lowinterestratesandopen-endedliquiditybeingprovidedbyleadingDMcentralbanks,oritmaysimplyreflectinvestorcomplacency.Theycanseethelocalrisksfromincreasedpoliticaltensions,buttheydonotyetappeartoseethisaspartofabroaderglobalthemethatshoulddemandhigherriskpremiumsacrossallmarkets.
Indeed,capitalmarketsmayinadvertentlybecontributingtosocialandpoliticaltensionsbyvirtueoftheirunconsciousuncoupling.Cheapmoneyhasboostedassetprices.Thiswillhavehelpedtostabilizefragileeconomies.However,italsowidenswealthgapstheasset-richhavegotricher.Buthighlevelsofunemploymentsuggestthatthetrickle-downtoabroaderconstituencyhasbeenslow.
HownewisVoxPopulirisk?Tobesure,protestmovementshavehadasignificantimpactonthegloballandscapeinthepast.Thecivilrightsandanti-VietnamWarmovementsintheUSinthe1960s,thelaborandstudentmovementsinEuropeduring1968,andthe1989WindsofChangethatultimatelybroughtanendtotheIronCurtainandSovietUnionareprominentexamples.Butinalessglobalizedenvironmenttheirinfluencewasmainlydomestic,intheUSandEuropeancontext,andregionalinCentralandEasternEurope.
1 TinaFordhamGlobalPoliticalInsights:TheYearofLivingDangerouslyComestoaClose,CitiResearch,October24,2011 2 Doug McAdam, Sidney Tarrow and Charles Tilly. Dynamics of Contention. Cambridge University Press, 2001.
Vox Populi risk is the presence of shifting and more volatile public opinion, the pressure it places on policymakers and its relationship to markets
Trustinpublicinstitutionshasdeclined
But global equity indices are trading at all-time highs
Protest movements in the past had greater influence in a domestic environment
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
12
Contrasttheseprotestsofthe1960sandlate1980swiththeArabSpring,wheretheexampleoftheself-immolationofaTunisianfruit-sellersparkedawaveofprotestsacrossaregionthathadlittlerecentexperiencewithit.TheUSsOccupyWallStreetmovementcrystallizedthesentimentofWearethe99%,pittingelitesagainsttheoverwhelmingmajority.Twoyearslater,acrosstheworldinNigeria,aplanfortheremovaloffuelsubsidiesquicklyturnedintoamassprotestunderthebannerofOccupyNigeria.TheAmericanOccupymovementitselfclaimedtodrawinspirationfromtheArabSpringandtheSpanishIndignadosmovement.AlthoughOccupyWallStreetfailedtoaccomplishanyconcretepoliticaloutcomesintheUSwhereitoriginated,itsanti-establishment,anti-elitecatchphraseencapsulatesaconceptthathasresonatedwithmiddleclassesacrossbothdevelopedandemergingmarkets.
Figure 2. The Continuum of VoxPopuliRisk and Some of Its Effects
Source:CitiResearch
Evenleaderssweptintoofficeonthebackofapopularmandatemayfindthemselvesonthewrongsideofpublicopinionveryquickly,aspost-revolutionaryEgyptianPresidentMohammedMorsilearned.Oneconsequencehasbeentheemergenceofshorter-tenuredgovernmentswithreducedroomforpolicymaneuver,andeventhehandoverofpowertonon-electedtechnocrats.OnesuchexamplewasEuropeanCommissionerMarioMontisbrieftenureasItalianprimeministerhehasbeenfollowedbytwomoreunelectedpremiers,EnricoLettaandMatteoRenzi.Acrossthedevelopedworld,electedleadersarehamstrungbyever-shorterhoneymoonperiods,roller-coasterpublicapprovalratings,legislativegridlock,fractiouspoliticalpartysystems,andausteritybudgets.
Todaysprotestsarefeedinguponeachother in a more global way
Figure 3. Fractious Politics: A Few Effects of VoxPopulirisk Over the Past Two Years
Bulgaria: Hung parliament Finland: Anti-bailout MP's push
government's hard stand France: Resurgent far-right Front
National Greece: Rise of hard-left and neo-Fascist
parties Italy: Hung parliament Spain: Catalan secessionist movements UK: Push for Scottish independence and
in-out EU referendum US: First government shutdown in 17
years, aborted Syria intervention
Source:CitiResearch
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
13
Figure 4. The Mechanism of VoxPopuli Risk
Source:CitiResearch
Thesedevelopmentsarealsotakingplacebetweenelectioncycles,underscoringhowinanenvironmentofpopulardiscontent,disgruntledpublicsmaynotbewillingtowaityearsfornewelectionsbeforetheydemandtheopportunitytomaketheirviewsknown.Whereelectionsoccur,theymorefrequentlyresultinfragmentedoutcomes,suchasmulti-partycoalitions,asintheUKin2011(thefirstcoalitiongovernmentinBritainsince1974)andhungparliaments,asinItalyandBulgariain2013.
Figure 5. After Decades of International Convergence, Fragmentation?
Source:CitiResearch
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
14
TheEmpiricalBasisforVoxPopuliRisk ToquantifytheeffectofVoxPopulirisk,weexaminedtheelections,massdemonstrationsandotherpoliticaleventsinthecountriesthatmakeuptheMSCIDevelopedMarketsandEmergingMarketsuniverses.WeclassifiedtheseasVoxPopulirisk(VPR)events.
VPReventsinouranalysishadmoreorlesspoliticalimpactdependingonthepresenceofkeycharacteristicsthatmaycombinetoproduceamarket-movingsurprise.Theseincludemassprotestsinmultiplecities,thepresenceofviolence,afailedelectionorhungparliament,theriseofnewpoliticalactorsorNEAPs,andsecessionistorterritorialclaims.Thepresenceoftwoormoreofthesefactorscouldbeconsideredahigh-VPRevent,thepresenceofoneamid-rangeVPRevent,andthelackofanyalow-VPRevent.
Wenoted69sucheventsbetween2011andApril2014,thoughmost(43of69,or62%)hadlimitedpoliticalimpact.Ingeneral,thesewereregularlyscheduledelectionswhereincumbentsweresuccessfulorwheretheelection'soutcomewaslargelyexpected.TypicalinthisgroupistheSingaporeelectionin2011.Nineeventshadaparticularlydestabilizingimpactonpoliticaltrends.Ingeneral,theselarge-scaleeventsinvolvecoupdtats,massiveprotests,snapelectionsresultinginhungparliaments,orconflictswhereopposingpartiesdisputedthebasicnatureofthestate(i.e.,pro-/anti-democracyorsecessionistmovements).WithinthisgrouparetheGreekelectionofMay2012,TurkeysGeziParkprotests,andtheEgyptianmilitaryinterventionthatremovedMohammedMorsi.Thefinal17hadanintermediatepoliticalimpact,liketheSouthAfricanlaborprotestsandtheriseofNEAPsinFinnishandAustrianelections.Thesetendedtobemassproteststhatdidn'thaveasignificantpolicyimpactorelectionswherepopulistpartiesmadenotablegains.
WhatcharacterizedtheVoxPopuliriskeventsthatmostaffectedglobalpolitics?First,thesepoliticaleventscameasasurprisetomarketsonaccountofasuddenelection,ahungparliament,orarapiddescentintoprotest.Evenwhereourpoliticalanalysisanticipatedrisksorpollingdatamayhavebeenpredictive,marketswereoftencaughtunaware.Second,manyofthemostseriouseventsinvolvedirreconcilabledisputesbetweenelitegroupsoverthebasicnatureofthestate:whetherbetweendemocracyandauthoritarianism,betweenopposingsocialbases,oraspartofcenter-regionaltensions.
Theelementofsurprise.Consistentwithabroadacademicliteratureonmarketpriceaction,thehighest-impactVoxPopuliriskeventscomeassurprises.Ingeneral,thismeansanunscheduledelectionorgovernmentcollapse,aspontaneous/unexpectedmassdemonstration,oranelectionthatendedinasurpriseresultorhungparliament.Snapelectionsareanoutcomelimitedtoparliamentarydemocracies,meaningthesesystemsmayrepresentdisproportionatepoliticalriskintimesofeconomicstress.Allofourhigh-VPReventswereunscheduled,aswere14ofthe17mid-impactVPRevents.Low-VPReventswerescheduledandpredictable29of43times.
Irreconcilableelites.ThirteenVPReventscouldbesaidtorevolvearoundthebasicnatureofthestate,meaningtheywerepro-representativegovernmentinthecaseofanauthoritarianregime,oracoupdtatorsecessionmovement.Thisincludedfiveoftheninehigh-VPRevents,includingarevolutioninEgypt,theRussianinterventioninCrimea,andmassprotestinThailand.Thefivemid-or-lowVPReventsincludepro-democracyprotestsinChina,andstudentandfarmerprotestsseentoberelatedtotheFARCinsurgencyinColombia.
Of the 69 Vox Populi risk events that we identified, 43 had limited political impact as most were regularly scheduled elections with expected outcomes
Events that impacted global politics the most were ones that were a surprise to the markets or involved irreconcilable fights between elite groups
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
15
Whatdidntaffectglobalpolitics?Contrarytothepopularnarrativesofwhatmaybedrivingcontemporarysocialunrest,wefoundlimitedevidenceoftheeffectsofGDPgrowthorausteritypoliciesorviolence.Whileallofthesevariablesarerepresentedatleastinsomerespect,nostrongpatternsorrelationshipsareapparentinDMorEMmarkets.
GDPpercapita.GDPpercapitawaslowerinhigh-VPRcountries(mean$14,100,median$11,600)andhigherinlow-VPRcountries(mean$25,700,median$12,700).Allthreegroupshadabroaddistributionofincomes,however.Inthehigh-VPRgroup,wefoundcountriessuchasEgyptandBrazilbutalsoItalyandGreece.Thelow-VPRgroupincludedNorway,theUSandTaiwan,butalsoColombia,ChinaandMexico.
Austerityasariskfactor.Fifteenofthe69eventsrevolvedaroundausterityasakeyfactor.MostofthesewereinEurope,whereausterityhasdominatedthepublicdebate.Thisincludesfouroftheninehigh-VPRevents,butitalsoincludeslow-riskEuropeanelectionsandmid-riskEuropeanprotests.
Corruptionasacatalyst.Eleveneventsexplicitlyinvolvedstatecorruptionasamotivationfordiscontent.Onlytwowerehigh-VPR(BrazilandItaly).Therestwereamixofmassprotests(inBrazilorChina)orelectionscalledinthemidstofcorruptionscandals(inFinland,AustriaandtheCzechRepublic).
Violence.Comparativelyfeweventsinthedatasetcouldbecharacterizedasviolent:eightof69.ThisgroupincludedEgypt,Brazil,Turkey,GreeceandSouthAfrica,aswellasRussiasinvolvementintheCrimea.Theseweretheonlyeventsthathadanyreporteddeaths.MostdeathswereinEgypt(over2,200inbothevents)onlySouthAfricaandRussiahadmorethan10reporteddeaths(40inMarikana,80inUkraine).Nevertheless,politicalscienceliteraturesuggeststhatwhenthemajorityofthepublicregardsdemonstratorsashavingalegitimategrievance,thedeathsofprotestorscanoftengalvanizepublicsupportintheirfavoroftentothedetrimentofincumbentgovernments.
Relatedtotheelementofsurprise,VoxPopuliriskhasbeenakeydriverofshort-termvolatility.Lookingatthelargestsingle-daymovesintheVIXoverthepastfiveyears,halfwereduetopolitical-orpolicy-drivenevents.Notablepoliticaleventrisksover2013thathavemovedmarketsincludetheconsequencesofelectionsandriotsofthetypeinourVoxPopuliriskeventdataset.Alsoincludedweremarket-relatedpublicstatementsbyUSPresidentBarackObama(Figure6).
Little impact from the effects of GDP growth, austerity policies, government corruption or violence
Surprise and Vox Populi has been a driver of short-term volatility
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
16
Figure 6. Liquidity Aside, Politics Still Matters. Many Of The Top OneDay VIX Moves Since QE Began Correspond to Political Events.
Date %Change
in VIX %Change
in S&P Political Events Financial/Macro Events 2/25/2013 38.7% 1.83% Italianelection 8/8/2011 30.1% 6.59% USdowngrade 8/4/2011 28.9% 4.77% ECB,BoJactions,
slowdownfears5/6/2010 26.7% 3.11% Flashcrash4/27/2010 25.8% 2.17% Greecedowngrade1/28/2011 25.7% 1.79% TahrirSquare Japandowngrade5/7/2010 25.0% 1.43% UKelection,Greeceriots 10/30/2009 23.9% 2.74% Endofmonth1/22/2010 22.6% 2.13% USpolicyuncertainty,Fed 1/24/2014 21.3% 2.01% Chinafears,USearningsmiss1/21/2010 19.8% 1.95% Obamacallsforbankregulations 3/16/2011 19.3% 1.76% UShousingdata,
Fukushimadisastercontinues3/1/2011 19.2% 1.68% Libyancivilwar 2/20/2013 19.2% 1.24% Fedcommunication
Source:ChicagoBoardofExchange,Bloomberg,AssociatedPress,CNNMoney.com.CitiResearch
SocialMediaFuelsFlashMobDemocracy,butDoesntGuaranteePoliticalTransformation Whyispublicopinionmoreglobalizedandfastermovingthaninthepast?Althoughtechnologyenablesprotests,ratherthanbeingacasualfactor,advancesinsocialmediaandcommunicationstechnologyhavedriventheseeminglyinstantaneousnatureofcontemporarymassprotest.ProtestsinEgypt,BrazilandTurkeywereorganizedonline,aswastheOccupyWallStreetmovement.Thesetacticshavebeencopiedandre-interpretedaroundtheworld.Episodesofwhatwecallflashmobdemocracycanappearovernightandrapidlymultiplyacrosscities,townsandregions,placingsignificantpressureongovernmentelites.SkyrocketingInternetpenetrationinthepastfiveyearssuggeststhetrendislikelytointensify.Thisallowswould-berevolutionariestoorganizeinmultiplecitiesaroundawholecountryindaysorevenhours.
Indiahasseenover100millionmoreInternetusersgainaccesstotheInternet,apossiblefactorinitselectionthisyear.Eveninsmallercountries,theimpactcanbesignificant.UkrainesInternetpenetrationincreasedfromroughly3millionupto9millionpeople,representinga515%jumpfrom2007to2012.China,inthesamefive-yearperiod,gainedanamazing360millionmoreInternetusers.Thisrapidincreaseleadstoanobviousquestion:asChinaseconomybecomesmoreglobalizedanditspopulationmoreconnected,couldit,too,seeariseinprotestactivitysimilartootherEMcountrieswithlarge,emergingmiddleclasspopulations?
Advances in social media and the Internet have driven the speed of contemporary mass protest and ease of organizing large crowds
The rise of the internet has been rapid in emerging markets
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
17
Figure 7. Internet Penetration Skyrocketed Between 2007 and 2012, With the Addition of 360 Million New Users in China Alone.
Source:WorldBank,CitiResearch
Thoughthepotentialforonlineproteststogenerateshort-terminstabilityishigh,therecentrashoflarge-scaleEMprotestshasgenerallyfailedtotranslateintochangesofgovernmentorevenpolicy.Whataccountsforthis?PartoftheexplanationliesinthefactthatInternet-ledprotests,althoughtheycanbeorganizedquicklyandbenefitfromtheirabilitytoproduceasenseofsafetyinnumbers,usuallylackthesocietalnetworksandleadershipnecessarytofocussuchpopulardiscontentandconvertitintoconcretepoliticaloutcomes.TheabsenceofasignificantbenefittoTurkeysoppositionpartiesasaresultoftheGeziParkprotestshighlightstheincreasinglydecentralizednatureofprotestactivity.Traditionally,successfulpoliticalmovementsdrewtheirorganizationalsupportfromcivilsociety,vanguardpoliticalparties,universitiesorareligiousinstitution.Withouttheestablishmentofsuchnetworks,theseoutburstsofpopulardiscontentmayfizzlewithlittleconcretepoliticalimpact,withthemostsignificantcollateraldamagecomingintheformofdentedapprovalratingsandreducedpoliticalcapitalforincumbents,ratherthanregimechange.
VoxPopuli,withthehelpofsocialmedia,createmanymorevetogroupsthatcaneliminateindividualcomponentsofaprogram,oftenmakingwhatisleftincoherentandunworkable.Atthesametime,itcanalsosignificantlylowerthecostoflobbyingtoremoveanunpopularpolicy.Thatisparticularlytrueforfiscalausterityandstructuralreformwherethereareoftenasignificantnumberoflosers.Isitemasculatingrepresentativedemocracywithitscapacitytoreachcompromisesacrossissuesandtime?Thereisnoinvisiblehandoftheflashmobthatensuresthattheuncoordinatedactionsofsingle-issuemovementsproduceasetofpoliciesandadministrativeactionsthatmakesense.Ifanything,theoverarchingtrendisoneoffragmentationratherthanagroundswellofsupportinfavorofaparticularpoliticalagenda.Onepossible,andnotableexception,isregulationandtaxation,particularlyofunpopularindustries.
116
189
248
100
150
200
250
300
350
400
450
500
550
2007 2008 2009 2010 2011 2012
Index Increase in Internet Penetration
DevelopedMarkets
(Inde
x200
7=10
0)
264
318
275
100
161
515
100
150
200
250
300
350
400
450
500
550
2007 2008 2009 2010 2011 2012
Index Increase in Internet Penetration
(Inde
x200
7=10
0)
India
Egypt
China
Brazil
Ukraine
211
46 5912 20 3
571
156
99
36 33 150
100
200
300
400
500
600
China India Brazil Egypt Turkey Ukraine
Nominal Internet Penetration (Millions of Persons)
2007 2012
Interne
tPen
etration
(Nom
inal,M
illion
s)
Although quicker to organize, Internet-inspiredprotestsdontalwaysconvertintoconcrete political outcomes
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
18
VoxPopuliandMacroeconomics:UncertaintyCurbsGrowth JayUlfelder,scholarofdemocratictransitionsandprediction,foundthatcoupsdtattypicallyresultina2%economicdragontheaffectedcountriesduringtheyearoftheintervention,andthenanother1-2%thefollowingyearbeforereturningtotrend.Thiscouldbecalledthecoupoutputgap?3Byextension,couldmassprotestsandprolongedperiodsofheightenedpoliticaluncertaintyproduceasimilardeclineinGDPfigures?Withthisinmind,weexpectnotjusttheshort-termnegativeeffectsonGDPforecaststhatUlfelderdiscusses,mainlydrivenbydomesticaggregatedemandbutweshouldalsoexpectlowerlong-rungrowthbecauseofbadpolicies,clientelismandaneglectofincentivestowork,saveandinvest.
Oneoftheoldestobservationsabouthouseholdandfirmdecision-makingundertimesofuncertaintyisthatgreateruncertaintyincreasesprecautionarysavings(thusreducingconsumptiondemand)and,byraisingtheoptionvalueofwaitingtofindouthowtheuncertaintywillberesolved,lowerscapitalformation.Thismeansthetwomaincomponentsofdomesticdemand(accountingoftenfor80%ofdomesticdemandormore)areadverselyaffectedbythegreateruncertaintycreatedbyVoxPopulirisk.4
Moregenerally,thereisawidereconomicimpactfromVoxPopuliriskbeyondassetprices.Therearemanyimportantbusinessdecisionsandeconomicpolicydecisionsthatarenotdirectlyorvisiblydrivenbyliquidfinancialmarkets.Forexample,theimpactofUkrainianVPRandthesubsequentRussianinvolvementinCrimeawillhaveimportantconsequencesforEuropeaninvestmentintheinfrastructureofreducedenergyimportdependencefromRussia.Thismeansmoreinvestmentintransportation,shipmentandstoragefacilitiesforgas(includingLNG),coal,oilanduranium.Itmeansgreaterinvestmentintheelectricpowertransmissiongrid,integratingtheBalticsintothewiderEUhigh-tensionelectricpowertransmissiongrid.
Greaterpoliticalrisk,includingVPR,isadeterrenttocapitalexpenditureinthecountrieswhereitoccurs,evenifthesecountriesdonthavewell-developedliquidanddeepfinancialassetmarkets.InwardforeigndirectinvestmentinVPR-afflictedcountrieslikeThailandandUkraineisboundtosuffer.Anyeconomicactionthatiscostlyorevenimpossibletoreverse,likeengagingingreenfieldinvestmentinafactoryorstoragefacility,islikelytobediscouragedbyVPR.Businessdecisionswitha30-yearhorizon,likeexplorationfornaturalresourcesorcapitalexpenditureonextraction,transportationandstoragefacilities,arelikelytobeputonholduntilVPRisresolved.
Althoughmostoftheoutstandingstockofequityistradedinthemarketsofalimitednumberofadvancedeconomies,mostphysicalcapitalexpenditurenowoccursinemergingmarkets.Inaddition,althoughtheUSnowaccountsfor49%ofstockmarketvaluationsandEuropeforanother25%,asignificantpartofthefuturestreamofprofitsandearningspricedinthesemarketsaregeneratedbyrealeconomicactivityinemergingmarketswhoselocalstockmarketsareoftensmall,illiquidandnotsystemicallyimportant.
3 Jay Ulfelder.CoupsSlowEconomicGrowth.JayUlfelderblog.July11,2013. 4 WilliamLee.Policy Uncertainty and Investment - How Much Lower Must Real Interest Rates Go? Citi Research. February 3, 2014
Economic drag is seen with coups dtat but also in the short-term with Vox Populi events and longer long-run growth is also expected to suffer
Greater uncertainty leads to household savingsandadomesticdemand
.andisalsoadeterrenttocapitalexpenditure
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
19
Inouranalysis,wenotedimmediatedropsintheGDPforecastforcountrieswhichexperiencehighVoxPopuliriskevents.FollowingtheDecember2013unrestinThailand,CitisGDPforecastdroppedmateriallythenextmonthandcontinuedtodrop.ThesamehappenedinEgyptaftertheJuly2013militaryintervention,thoughtheGulfStatesattemptstoshoreEgyptscurrentreserveshelpedstemthefall.
Figure 8. Major VoxPopuli Events Caused Citi GDP Forecasts To Drop Materially
Source:CitiResearch.Datareflects2014GDPforecastbeforeandaftertheThailandunrestofDecember2013andtheEgyptianmilitaryinterventionofJuly2013.
VoxPopuliandMacroeconomics:IncomeInequalityFuelsPoliticalEconomyofDiscontent Perceptionsofgrowingincomeandwealthinequalityareincreasinglyregardedasbeingattheheartofmiddleclassdiscontent.Thisdiscontenthasbeenexacerbatedbythefinancialcrisisandthesubsequentrollbackinmiddleclasslivingstandards,thefirstindecadesinsomecountries.IntheUS,realwageshavebeenstagnantforoveradecade.PollingdatahasshownthatpopulationsacrossDMandEMcountriesareexperiencingsignificantmiddleclassanxiety.In2013,forexample,Pewreportedamajoritybelievingtheirchildrenwillbeworseofffinanciallythantheyarethemselves.Inmanyinstances,suchastheUS,thisrepresentedahistoricalchangeintrend.InFrance,thismajoritywas90%,andinJapan,78%.
1.0%
2.0%
3.0%
4.0%
5.0%
4 3 2 1 MonthOf +1 +2
Citi GDP Forecasts After VoxPopuliEvent
Thailand, Dec. 2013
Egypt , July 2013
Both Thailand and Egypt saw immediate drops in economic forecasts following VPR events
Middle class anxiety from growing income and wealth inequality is a driver of Vox Populi
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
20
Figure 9. Middle Class Anxiety: Large Numbers Across Major Markets Believe Their Children Will Fare Worse Than Themselves
Whenchildrentodayin(country)growup,doyouthinktheywillbebetterofforworseofffinanciallythantheirparents?Worseoff
Source:PewResearchGlobalAttitudesProject,CitiResearch.SurveysconductedMarchApril2013,marginsoferrorranging+/3.37.7%.
ThankstorapidEMgrowth,globalincomeinequalityacrosscountrieshasdecreasedsignificantlyandindeedtheGinicoefficienthasdeclinedsincethebeginningofthecentury.Yetwithinindividualsocietiesthatis,thenational,regionalorlocalcommunitiesthatdefinepeoplesreferencegroupsandbenchmarksagainstwhichtheymeasuretheirpersonalmaterialwell-beinginequalityhasskyrocketed.Globalizationhasraisedworldwideincomes,removingthefocusfrompovertyreduction.Forthefirsttimeinthestudyseight-yearhistory,the2012WorldEconomicForum(WEF)GlobalRisksreportidentifiedincomeinequalityasthemostlikelyglobalriskforthenext10years.AWEFexpertsurveysuggestedthatinequalitywasconnectedtomorethan40globalchallengesstudied,exceedingstatefailure,corruption,andclimatechangeinperceivedsignificance.
However,parentsfearingtheirchildrenwillbeworseoffthantheyareisnotfearofinequalityperse.Rather,wethinkitshouldbeinterpretedasanxietythatthesystemischanginginawaythatpeoplehavelessfaiththatthepathtoprosperity,andtheopportunitiesitaffords,willbeasopentotheirchildrenasitwastothemselves.Thisdeclineinoptimism,ifsustained,couldstrengthendemandsforsocialsafetynetsandreduceincentivesforadvancededucationandotherchoices.Evenifallchildrenwereexpectedtobeequallypoor,theparentswouldstillcare.Regardless,concernsaboutincomeinequalityhavebeenatthecoreofsomeofthemosthigh-profileexamplesofVoxPopuliriskinDM,includingOccupyWallStreetintheUSandtheIndignadosprotestsinSpain.Bothmovementswereprofoundlymiddleclassprotests,galvanizingprotestorsagainsttherollbackofthesocialsafetynetandrisingyouthunemployment.Sofar,nosignificantpoliticalactorhasbeenabletocapitalizeuponthisanxiety,butitrepresentsfertilegroundforaspiringpoliticalupstarts.
Thepainofthefinancialcrisisanditsaftermathhasbeenborneoverwhelminglybytheyoung.IntheUS,SocialSecurityandMedicarebenefitsaresacredcows.InEurope,wherelong-termcontractswithbenefits,rightsandentitlements,includinglast-infirst-outseverancerulesandotherseniorityfeaturesarehelddisproportionatelybytheolderworkers,withtheyoungmakingdowithso-calledflexiblecontracts,whichareoftennotmateriallydifferentfromthedaylaborerarrangementsofthepast.Butthisinter-generationaldisparityisnotcapturedwellbythesnapshotGinicoefficientsforincomeorwealth.
27%53%
62%64%64%65%
73%74%76%
90%
0% 20% 40% 60% 80% 100%
Israel
Australia
UnitedStates
Canada
Germany
Spain
Italy
UnitedKingdom
Japan
FranceDeveloped Markets
7%12%13%18%24%25%29%
37%39%40%42%43%
58%61%67%
0% 20% 40% 60% 80% 100%
ChinaMalaysia
ChileBrazil
RussiaIndonesiaPhilippines
SouthKoreaMexico
SouthAfricaEgyptTurkey
CzechRepublicPolandGreece
Emerging Markets
Global inequality across countries has decreased, but within individual societies, it has shot up
Generational inequality is also on the rise buthasntbeencapturedwellyet
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
21
Theworseningemploymentsituationhasintensifiedtheriskofsocialunrest. INTERNATIONALLABORORGANIZATION
Theimpactfromincomeinequalitymaynotbelimitedtostreetprotests.AmericanpoliticalscientistshaveobservedthatincomeinequalityishighlycorrelatedwiththeriseofpartisanpolarizationintheUSCongress.Incomeinequalitymaybefuellingapoliticaleconomyofpolicyeliteswhoareoperatingwithinanenvironmentofseeminglyirreconcilabledifferences.
Figure 10. Partisan Polarization in the US Has Risen Along with Income Inequality in a Highly Correlated Way
Source:PooleandRosenthal/PolarizedAmerica,FederalReserveBankofSt.LouisFRED,CitiResearch
0.300
0.320
0.340
0.360
0.380
0.400
0.420
0.440
0.460
0.480
0.500
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.219
4719
5119
5519
5919
6319
6719
7119
7519
7919
8319
8719
9119
9519
9920
0320
0720
11
Gini
Coe
fficie
nt
Polar
izatio
n
Partisan Polarization in theUS Congress & Income Inequality
HousePolarization
SenatePolarization
GiniCoefficient
Houser=0.96Senate r=0.84
Income inequality is driving partisan polarization in government
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
22
VoxPopuliRiskinDevelopedMarkets:DiscontentisAnti-Reform,andMindtheGenerationGap Inacycleofdeleveraging,theinterestsofcreditorsanddebtorsinsocietyareopposedinazero-sumgame.Todayspoliticalbattlelinesaredrawnovertheallocationofstateresourcesratherthanideology.Theconflictcanbenegative-sumifthefightoverthedistributionoftherentsdestroyssomeormostoftheserents.Suchdividedinterestsfuelpolarization,gridlockandaversiontostructuralreform.Therearedemandsforchange,buttypicallycitizensseektomaintainthestatusquoforthemselves.
Developedmarket(DM)middleclassesnowoftenconstituteananti-reformbulwark,punishingausterity-budgetincumbentsinthevotingbooth.TheUKthinktankPolicyNetworknotedthefactthatthemiddleclassesarethebeneficiariesofthepriorfiscalorder,whichmakespensionsandwelfarepaymentstooldcohortspracticallyuntouchable.5
IntheUS,budgetcutshavefallenalmostexclusivelyontheyoung,withentitlementssuchasSocialSecurityandMedicarelargelyuntouched.Thefactthatoldervotersnowinmanycountriesoutnumberyoungervoters(witholdervotersgenerallymorelikelytovotethanyoungervoters)reinforcesthebiasinpublicsectorresourceallocationsinfavorofagingpopulations.Withgovernmentsamajoremployerofthemiddleclass,publicsectorreformmayconstituteathird-railofpost-crisispolitics.Astraditionalmainstreampartiesimplicatethemselvesinthereformprocess,theriskincreasesthatmust-winmiddleclassvotersrejectthemandturnincreasinglytounconventionalpoliticalalternatives.Inthisenvironment,jobapprovalformostDMleadershasstoppedorstayedlowoverthepasttwoyearsAngelaMerkelbeingthemostnotableexception.
Figure 11. Public Approval for Major DM Leaders Has Dropped Or At Relatively Low Levels Over the Two Years
Source:Pollster.com/TheHuffingtonPost,Electionista,Sondageenfrance.fr,YouGovUK,CitiResearch
5 Patrick Diamond and Guy Lodge. "European Welfare States After the Crisis: Changing Public Attitudes." Policy Network, January 2013.
15%
20%
25%
30%
35%
40%
45%
50%
55%
Nov12 Mar13 Jul13 Nov13 Mar14
Barack Obama
15%
20%
25%
30%
35%
40%
45%
50%
55%
Nov12 Mar13 Jul13 Nov13 Mar14
Francois Hollande
15%
20%
25%
30%
35%
40%
45%
50%
55%
Nov12 Mar13 Jul13 Nov13 Mar14
David Cameron
The struggle for limited state resources fuels polarization, gridlock and aversion to structural reform
DM leader approval ratings continue to plummet as middle classes constitute an anti-reform bulwark
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
23
Thisbegsthequestion:forhowlongcantheoldout-votetheyoungbeforethedynamicshifts?Inter-generationaltensionswereamajorfactorinthe2013Italianelectionresultthatproducedahungparliamentwherenopoliticalpartywasabletogainanabsolutemajorityofseats.Whatpreventsthistensionfrombeingamoresignificantfactorislikelytobetheapathyofyoungervoters,whotypicallyscorelowonpoliticalparticipation,forfeitingtheirpowerattheballotboxandmaintainingtheelectoralprimacyofbabyboomervoters.Couldacatalystemergethatgalvanizesyouthvotersandseesthemengageinthepoliticalprocess?Sofar,theissuecapableofinspiringthischangeisnotapparent.
RiseoftheNEAPs Abyproductoftheerosionofthepost-Warpoliticalorderisthatmainstreampoliticalactorshavebeenjoinedonthescenebynewplayers.Ourtermforthesenewpoliticalparties,whichspanthepoliticalspectrum,isNEAPs,ornew,extremeoralternativeparties.Asarule,thesemovementsandpoliticalpartiesareanti-establishment,and,intheEuropeancontext,euroskeptic.Somerepresentsingleissuesorsimplyageneralizedanti-orientation,ratherthanthebroadplatformsthatcoulddrawinawidercoalition.WhenNEAPsattackthemainstreampartiesfromtheirrightandleftflanks,mainstreampartiesarelikelytoadoptsomeNEAPpolicypositionsastheytrytomaintaintheirconstituencies,inasortofpoliticalcross-dressing.Thus,evenifnotelectedtoleadgovernments,NEAPsarehavingasignificantinfluenceonthepolicydebate.UKPrimeMinisterDavidCameronhasplacedanin-outreferendumonBritishmembershipintheEuropeanUnion(slatedfor2017)atthecenterofthenationaldebate,overtheobjectionsoflargesegmentsofhisownpartyandmainstreamBritishbusinessinterests,inanefforttostemtheriseoftheeuroskepticUKIndependenceParty(UKIP).UKIPisdrainingsupportfromConservativesheadingintoMay2014EuropeanParliamentaryelections,andevenhassomeToriesworriedaboutthe2015UKgeneralelections.
Figure 12. Challenges to Mainstream Political Parties and the Rise of Euroskeptic or AntiEstablishment NEAPs
Figure 13. In European National Parliaments, NEAP Parliamentarians Have Tripled Since The Crisis Began
Country Party(ies) Country Party(ies) Austria FreedomParty Japan JapanRestoration
AssociationNEOS Latvia NationalAllianceTeamStronach Lithuania OrderandJustice
Belgium VlaamsBelang WayofCourageAttack Luxembourg ADR
CzechRepublic ANO TheLeftUsvit Netherlands FreedomParty
Denmark People'sParty/DF ReformedPartyRedGreenAlliance SocialistParty
Finland TheFinns Poland SolidarnaPolskaFrance FrontNational YourMovementGermany Afd Portugal LeftBloc
PirateParty Slovakia SlovakNationalPartyGreece ANEL Spain Secessionist&nationalist
partiesGoldenDawn UnitedLeftSyriza Sweden LeftParty
Hungary Jobbik Sweden SwedenDemocratsIndia AadAadmiParty UnitedKingdom RespectIreland SinnFein UKIndependenceParty
UnitedLeftAlliance UnitedStates TeaPartymovementItaly FiveStarMovementSource:CitiResearch Source:CitiResearch
225
703
0%
2%
4%
6%
8%
10%
12%
2008 2009 2010 2011 2012 2013 2014
EU P
arlia
men
taria
ns R
epre
sent
ing
Euro
skep
tic P
artie
s
New, extreme or alternative parties are on the rise and representanantiorientation
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
24
TheNEAPstrendisparticularlypronouncedintheEU,thoughfarfromexclusivetoit.Byourcalculations,thenumberofEuropeanUnionparliamentariansrepresentingeuroskepticpartiesatthenationallevelhastripledsince2011toover700,oraround10%,outof~7,200members.Thesenewmovementshavewonseatsin21ofthe28EUnationalparliaments.ThelargestincludeItalysFiveStarMovement,whichwonasurprising25%ofthevotein2013elections,aswellasGreecesSyriza,PolandsPalikotMovementandHungarysJobbik.WeexpectthatasignificantnumberofNEAPmemberswillenterlocalgovernmentandtheEuropeanParliamentoverthecomingyear.
IntheNetherlandsGeertWildersandhisFreedomPartyhaveannouncedplanstocreateablocthatwouldbringtogethereuroskepticandanti-immigrantpartiesafter2014sEuropeanParliamentelections,potentiallyjoiningwithFrancesNationalFront.AlargeeuroskepticblocintheEuropeanParliamentcouldfurtherinhibitprogresstowardtheintegrationandreformsattheEAandEUlevelsthatarenecessaryforfurtherpoliticalandfiscalintegration.Havingsaidthat,wenotethatanti-partiesmaystruggletoworktogethertowardasharedpoliticalobjective.Indeed,intherunuptotheEuropeanParliamentelections,manyhavebeenatpainstodeclaretheirunwillingnesstocollaboratewithpartiestheyfearwilltarnishtheirbrand,particularlywheretheremaybeperceivedconcernsofxenophobia.EventhenotableperformancebyNEAPsinEuropeanParliamentaryelectionsthisyearmaynotnecessarilytranslateintoaconcretepolicyagendainstead,theymayactasspoilers,slowingthemachineryofpolicymaking.Apossibleexceptionmaybeintheareaoffurtherregulationandoncurbstoimmigrationamongthefewareaswheretheantisfindcommoncause.
Anti-establishmentforceshaventarisenmerelyfromcenter-rightoranti-systempositions.ThepopulistLeftmayberesurgentaswell,directlypositioningitselftospeaktotheissueofincomeinequality.NewproposalsforminimumwagehikeshavemadeheadlinesintheUS,andinGermanywasevenakeyplankoftheincominggrandcoalitionsgoverningagreement.In2015,Switzerlandwillholdareferendumonabasicincomeprogramforallcitizens,thoughitsworthnotingthatSwissvotersrejectedaplantocapexecutivepayaslateasMarch2013.ThepotentialpolicyimpactinDMisconsiderableasevidencedbymostlegislatureshavingenactedorareconsideringnewregulationthatfocusonanti-financialserviceslegislation,CEOpay,wealthtaxes,minimumwageincreases,andrestrictionsbothonnewimmigrationandontherightsofoldandnewimmigrants.
Notallofthesenewgroupsarespecificresponsestothepost-crisispoliticsofausterityandbailoutdemands.PolandsYourMovement,forexample,drewtogetherliberal,anti-clerical,andanti-establishmentopinionatamomentwhenthecountryscenter-right-leaningpoliticalpartyspectrumofferednoseriousleftistalternatives.OutsideEuropebutwithinthisanti-establishmentcategorycouldincludetheTeaPartymovementintheUnitedStatesandJapansRestorationParty.Butinourview,allreflectdissatisfactionwiththelongstandingmainstreampartiesthathavedominatedthepost-Warpoliticalsystemindevelopeddemocracies,andademandforpoliticalalternativesthatisnotstrictlyaconsequenceofeconomicfactors.
The NEAPs trend is particularly pronounced in Europe
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
25
Figure 14. Referendum Risk: Centrifugal Forces Increase Uncertainty, But Will They Change the Status Quo?
Source:CitiResearch
ReferendumRisk:HowEuropeanVotesMaySurpriseMarketsandLeadtoPolicyUncertainty Againstthisbackdropofdiscontentandmistrustforinstitutions,severalDMgovernmentsarestrugglingwithregionalism,secessionismandadriveforthereturnofsovereignty.Evenafailedvotemaysetthestageforamarket-movingsurpriseinEurope,inwhatwecallreferendumrisk.BothScotlandandCataloniaplantoholdindependencereferendumsin2014,andin2017theUKisduetoholdanin-outreferendumonEUmembership.Thoughnoneoftheseballotsareexpectedtotranslateintovictories,theyaddtothesenseofpoliticaluncertaintyandfragmentation,weighingonconfidenceandsentiment.
Surpriseoutcomescouldhaveimmediatemarketimpactsorwide-rangingpolicyconsequences.First,theresultofanelectionmightinandofitselfsurpriseinvestors.Second,nationalgovernmentsattemptstooutmaneuverpublicopinionmayleadtonegativepolicyconsequences.Withthisinmind,weviewreferendumriskasanewandpotentiallypotentformofVoxPopulirisk,asaretreattonationalismandlocalismbecomesapowerfulpopularresponsetoglobalization.
Switzerlandimmigrationcontrols(February2014).OnFebruary9,2014Swissvotersnarrowlyapproved(50.3%to49.7%)areferendumtorestrictimmigrationfromtheEU.ThisvotewasseenascontrarytoEU-SwissbilateraltreatiesguaranteeingfreedomofmovementaspartofSwitzerlandsmembershipintheSchengenZone,andtheSwissgovernmentwillnowhavetoenactlegislationimplementingthereferendumsresults.ThoughthevotehadlimitedimpactonSwisscapitalmarkets,manyofEuropeseuroskepticandanti-immigrantpoliticiansareseekingtobuildsupportnowthattheissuehasgainedprominence.6Withthisinmind,nationalleadersmayattempttocounteractorco-optthesepartiespositions,withunforeseenconsequencesformedium-termEuropeanintegration.
Scottishindependence(September2014).TheScottishNationalParty-ledgovernmentinEdinburghhasscheduledareferendumonindependencefromtheUKonSeptember18.Thereferendumisexpectedtofail.BytheendofFebruary,forexample,48opinionpollsheldinScotlandhaveshowntheNosideupbyatleastsevenpointsormore.OnlyonesurveyhasshowntheYessidecloserandthatwascommissionedbytheSNP.Evenso,thepossibilityofaUKbreakuphasgeneratedpoliticaluncertaintywithinthecountryandconfusionabroad.BritishandEuropeanpolicymakershavespokenoutstronglyagainstthelikelihoodthatanindependentScotlandcanstaywithintheEUandthesterlingcurrencyzone.
6GiadaGianietal.Euro Economics Weekly - Could Eurozone Politics Return to the Fore?CitiResearch. February 14, 2014.
A number of governments are struggling with regionalism, secessionism and a drive for the return of sovereignty
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
26
Catalonianindependence(dueinNovember2014).Catalonia,oneofSpainsregionaleconomicpowerhouses,haslonghadanactiveseparatistmovement,anditssupporthasgrownasCatalansassociatethecentralgovernmentinMadridwithausterity,unemploymentandwaste,inadditiontolong-standingcomplaintsaboutnetbudgetarytransfersfromCataloniatotherestofSpain.RegionalelectionsinNovember2012werelargelyfoughtontheindependenceissue,andpro-sovereigntyCatalanPresidentArturMastookhisvictoryasamandatetoproceedwithareferendum.Afavorablevoteforindependence,scheduledforNovember9(butlikelypostponedafterarecentconstitutionalcourtruling)wouldcomeasasurprisetomarketstoday,astheSpanishgovernmenthasvowedtoblockitasunconstitutionalandthereforeillegal,sinceundertheSpanishconstitutiononlythecentralgovernmentcancallareferendum.WhenCitiResearchlastconsideredtheissue,ourEuropeanEconomistsexpectedthelossofCatalan-basedgovernmentrevenuetocauseasignificantnegativefiscalimpactfortheSpanishsovereignintheshortterm.7Atthetime,ourforecastforSpains2012fiscaldeficitwasat7.1%ofGDP.Todayour2015deficitforecastisanimproved4.8%,butthebasicargumentstillapplies.
Brexitin2017.Inperhapsthemostextremecaseofreferendumriskcurrentlyonthepoliticalhorizon,growingeuroskepticismintheUnitedKingdomhasculminatedintheproposalforanin-outreferendumonBritainsEUmembership.PrimeMinisterDavidCameronhassuggestedthat,werethegovernmenttobere-electedin2015,hewouldcallforsuchavotetotakeplacein2017.Brexitwouldhaveasignificantimpactontheeconomicandbusinessenvironmentwhatsmore,pollsareinfavorofsecession,werethevotetotakeplace.InJanuary2013,CitiUnitedKingdomEconomistswrote,EUexitwouldbeamajoreconomicnegativefortheUK,damagingtheUKsabilitytoattractforeigndirectinvestment(FDI)ingloballytradedgoodsandservicesindustries.8
7EbrahimRahbariandAntonioMontilla.ElectionsInCatalonia:DownThePathOfTwo-SpeedSpain.CitiResearch.November23,2012. 8MichaelSaundersandAnnOKelly.UK Economics Weekly - Brexit Could It Happen? Would it Matter?CitiResearch.January18,2013.
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
27
InFocus:ReferendumRisk:SecessionVotesMoreLikelytoFailthanPass,OtherthaninthePost-CommunistCountries In the modern era, referendum votes are more likely to fail than pass, unless the country is postcolonial or postCommunist. Indeed, only three new states have come into existence that werent the result of an explicit European decolonization process or a Communist collapse since 1974, and all these were a product of a United Nations process. Postcolonial and postCommunist.Ofthe29independencevotesconductedbydecolonizedorpostCommunistnations,onlytwofailedtopass:a1967voteinDjibouti,thencalledFrenchSomaliland,anda1992voteinMontenegro.Bothcountrieslaterconductedfavorablesecessionreferenda.Little luck in Europe and North America. FourteenindependencevoteshavebeenheldintheWestsinceWorldWarII,butonlyone(Iceland)resultedinthecreationofanindependentstate.TheFaroeIslands(Denmark)andNewfoundland(UnitedKingdom)alsovotedtosecede,buttheDanishparliamentoverturnedtheFaroesevoteandNewfoundlandlaterdecidedtojoinCanada.Mostsecessionballotshavebeenunsuccessful,mostnotablyinQuebec(Canada)andPuertoRico(UnitedStates). Quebec. TheCanadianprovinceofQuebechasheldtwosovereigntyvotes,onein1980andonein1995.The1980votewasaclearlossforthesovereigntymovement,60%Noto40%Yes.Butthe1995voteshockedCanadiansbyitsmuchcloserresult.Theprosovereigntypositionstartedstronglyandwasexpectedtowin,butavigorouscampaignbytheproCanadasideandthepromiseofconcessionsbyPrimeMinisterJeanChretienclosedthegapandthevotefailed,51%to49%.
Puerto Rico. TheAmericanterritoryofPuertoRicohasheldfourstatusvotessince1967,themostrecentin2012.Islandpoliticsrevolvearoundthestatusissue,andPuertoRicanpoliticiansdividethemselvesintoprostatusquoandprostatehoodpoliticalparties,ratherthanthemainlandRepublicansandDemocrats.Theindependenceoptionhasneverwonmorethan6%ofthevoteoverfourballots. Czechoslovakia.TheothermostnotableWesternsplit,Czechoslovakiain1992,wasconductedbytheCzechoslovakparliamentwithoutreferencetoapopularvote.Atthetime,theSlovakNationalAssemblyinBratislavahadalreadyissuedadeclarationofindependence.Eventhoughopinionpollingsuggestedthattheelectoratewouldopposethemove,thefederationparliamentinPraguebrokeredadealbetweentheCzechandSlovakleadershipandthebreakwaseffectedattheendoftheyear.PostCommunist and postSoviet.Between1990and1992,nineofthefifteenconstituentrepublicsoftheSovietUnionandfiveofthesixdivisionsofYugoslaviaheldindependencevotes.Fifteenofthesixteenvotespassed,withtheaforementionedexceptionofMontenegro.ThebreakawayregionsofNagornoKarabakh(Azerbaijan),SouthOssetia(Georgia)andTransnistria(Moldova)havealsoheldvotes,butnonehavebeeninternationallyrecognized.Three new nations, but birthed under UN supervision.Startingin1993,Eritrea,EastTimorandSouthSudanallconductedsuccessfulindependencevotesfollowingcivilwarsorinvasion.AllofthesevoteswereconductedundertheauspicesorsupervisionoftheUnitedNations.Somalilandalsodeclaredindependencein2001andhasoperatedasanautonomousrepublicintheHornofAfricawithoutinternationalrecognitionsincethattime.
Figure 15. In FiftyFour (54) Independence Votes Since WWII, Few Have Passed Outside PostColonial and PostSoviet Spheres
Decolonization & Trusteeship PostCommunist Independence Europe & North America New States Country Year Result Country Year Result Country Year Result Country Year Result Mongolia 1945 Passed Slovenia 1990 Passed Iceland 1944 Passed NewCaledonia 1987 FailedCambodia 1955 Passed Armenia 1991 Passed FaroeIslands 1946 Passed Eritrea 1993 PassedGuinea 1958 Passed Azerbaijan 1991 Passed Newfoundland 1948 Passed EastTimor 1999 PassedAlgeria 1961 Passed Croatia 1991 Passed Saarland 1955 Failed Somaliland 2001 PassedJamaica 1961 Passed Estonia 1991 Passed PuertoRico 1967 Failed SouthSudan 2011 PassedSamoa 1961 Passed Georgia 1991 Passed Aruba 1977 Failed 4 of 5Malta 1964 Passed Kosovo 1991 Passed Nevis 1977 Failed (80%) Rhodesia 1964 Passed Latvia 1991 Passed Quebec 1980 Failed Djibouti 1967 Failed Lithuania 1991 Passed PuertoRico 1993 Failed PostSoviet Breakaways Comoros 1974 Passed Macedonia 1991 Passed Quebec 1995 Failed Country Year Result Micronesia 1975 Passed Turkmenistan 1991 Passed Bermuda 1995 Failed NagornoKarabakh 1991 PassedDjibouti 1977 Passed Ukraine 1991 Passed Nevis 1998 Failed SouthOssetia 1991 PassedPalau 1993 Passed Uzbekistan 1991 Passed PuertoRico 1998 Failed Transnistria 1991 Passed
12 of 13 Bosnia 1992 Passed PuertoRico 2012 Failed SouthOssetia 1992 Passed (92%) Montenegro 1992 Failed 3 of 14 SouthOssetia 2006 Passed Montenegro 2006 Passed (21%) Transnistria 2006 Passed 15 of 16 6 of 6 (94%) (100%)
Source:CitiResearchbasedondatafromtheJournalofPublicMoney&Management,nationalelectionagencies.ThischartdoesnotincludeanyvotesrelatedtothecurrentUkrainecrisis.
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
28
VoxPopuliRiskinEmergingMarkets:MassProtestCanBePro-ReformYetMayNotLeadtoChangeinGovernment Inyoungerdemocraciesorstateswheretheballotboxisnotanoption,socialunrestbecomesthemostvividexampleofVoxPopulirisk.Intermsofunrest,VoxPopuliriskcanbecapturedintheemergenceofnewsocialmovements,streetdemonstrations,rebellionsandinsurgencies,evencoupsdtatandrevolutions.Unelectedleadersinlessdemocraticregimesalsofacethreatstolegitimacy,evenincaseswheretheyhavesuccessfullydeliveredimprovedlivingstandardsinthepre-crisisperiod.In2012and2013,majorpublicprotestsoccurredinBangladesh,Brazil,Bulgaria,Egypt,India,Jordan,Morocco,Pakistan,Romania,Russia,Slovenia,SouthAfricaandTurkey.Evenafterprotestmovementsculminateincrisesorrevolutionarytransformations,historysuggeststhattheyalsore-emergeperiodicallyinthesubsequentmonthsorevenyearslaterapatternsuggestingthatprotestsbegetprotests.
AkeybyproductofthenewEMmiddleclassistheirincreaseddemandsonthepoliticalsystem.Thesecanincludehigherpublicspendingontransport,healthandeducation,greateraccountabilityforpublicofficials,plusgreatercivilandpoliticalrights.Inmanyemergingandfrontiermarkets,thepoorqualityoftheofficialbureaucracyandtheoftenroutinenatureofgraftandcorruptioncanfueldistrustofelites.
Figure 16. Protests and Civil Conflicts, 20112014
Source:CitiResearch
BrazilandTurkey:ProtestsandElectionsinTwooftheFragile5 WhenVoxPopuliriskpresentsitselfonthestreets,akeyvariabledeterminingwhetheritwilltranslateintowiderdisruptionisthenatureofthegovernmentresponse.Agovernmentsconciliatoryposturecanlowertherisksresultingfromsocialunrest,whileadefiantcrackdown,especiallywhenthedeathsofprotestorsisinvolved,willlikelyincreasethem.Toillustratethis,wecomparethepathsofBrazilandTurkey.
Russia
RussiaTurkey Bulgaria
ColombiaIndia
Italy
Romania
KuwaitSouth Africa
Bangladesh Bahrain
UkraineVenezuela
ThailandNigeriaEgypt
SyriaCivil Conflict /
Civil War
MilitaryIntervention
Violent Protests/ Armed Confrontation
Mass PeacefulProtests
New middle class in EM are increasing demands on the political system
How a crisis is handled is as important as what the crisis is about
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
29
Figure 17. Protests By The Numbers: Little Similarity in Key Indicators, Except for Long Tenures in Office for Ruling Parties in the Biggest EM Economies with Social Unrest
Brazil Indonesia Russia South Africa Turkey Leader Rousseff Yudhoyono Putin Zuma ErdoganTenure of party in government
10 years 9 years 14 years 19 years 11 years
Partyorientation
Socialdemocratic
Centerright Conservative Socialdemocratic
Conservative
FreedomHouserating Free Partlyfree Notfree Free PartlyfreeNextelections October2014 April2014 2016 Summer2014 Spring2014Catalystforprotests Transitfare
hikesFuelpricehikes Democracy
activismLabordisputes Istanbulpark
redevelopmentGDPgrowth(2013F) 2.3% 5.8% 1.3% 1.9% 4.0%Unemployment(2013F) 5.5% 6.3% 5.5% 24.7% 9.8%Inflation(2013F) 6.2% 6.4% 6.8% 5.8% 7.5%Personalsatisfactionrate 59% 15% 22% 17% 21%Businessclimate(rankof185) 130 128 112 39 71Corruptionindicator 63 28 13 59 61Ruleoflawindicator 52 34 24 58 57
Source:FreedomHouse,WorldBank,GallupWorldPoll,CitiResearch
InBrazil,reactiontotheperceivedharshpoliceresponsetotheSaladRevolutionprotestorsonthestreetsofRiodeJaneiroswungpopularsupportbehindthedemonstratorsandwithitthesympathyofthemediaandgovernmentofficials(indeedmanyfiguresintherulingWorkersParty(PT),includingPresidentDilmaRousseff,areproductsof1980s-eraprotestandrevolutionarymovements).Ultimately,inachangeofstance,theBraziliangovernmentagreedtoreversethetransitfarehikesthatsparkedtheprotests,andtocommittoadialogueonreform.Rousseffsapprovalratingdroppedfromahighof65%inMarch2013to30%followingprotestsinJune2013,accordingtoDatafolha.EvengiventhatRousseffsapprovalratingshaveimprovedslightlyandsheremainsthefavoriteforre-electionin2014,albeitwithherchallengersenjoyingamodestboost,thisnewchallengehashadanimpactonherpoliticalcalculus,thatofherWorkersParty,andoftheopposition.9
TurkishPrimeMinisterRecepTayyipErdogansresponsetotheMay2013GeziParkincidentsoughttolimitprotestswithastrongresponsebythesecurityservices.ThespreadanddurationoftheprotestsincreasedpressureontherulingAKParty(AKP).Erdogansapprovalratingsdroppedfrom62%inDecember2012to53%inJune2013,andnowstandat44%inFebruary2014,accordingtoMetroPoll.10Withfallingapprovalratings,prospectsforconstitutionalreformmaybedelayed,butgiventhepartysperformanceinspringmunicipalelections,planstoholdthefirstdirectelectionsfortheTurkishpresidencyin2014arelikelytogoforward.Thus,despitethescaleoftheprotests,theAKP-ledgovernmentlargelyretainsitscoresupport,whiletheoppositionhasfailedtocapitalizeuponpublicdissent,suggestingdivisionandparalysisratherthanpoliticalchangemaybethekeyoutcome.WithBrazilandTurkeyheadingintoelectionsthisyearand2015,thereissignificantpotentialinbothcasesthatprotestactivitywillreturnyetinbothcases,theincumbentpoliticalpartiesareexpectedtobere-elected,albeitbysmallermargins,accordingtothelatestpolls.
9 Datafolha.ApsCairPelaMetade,AprovaoaGovernoDilmaVoltaaCrescer.August12,2013. Based on a survey of 2,615 adults conducted August 7-9, 2013, margin of error +/- 2%. 10 TomPeter.PollShowsErdogansPopularityHasTakenAHit.CouldHeLoseHisMandate?The Christian Science Monitor, June 18, 2013.
The Brazilian government sought to resolve theconflictquicklythroughnegotiation
whiletheTurkishgovernmenttookahardline response to protestors
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
30
IntheTurkishcase,theprotestshighlightedexistingsocialandpoliticaldivisionsaswellasthecontinuedfragmentedstateoftheopposition.TheincumbentAKPislikelytoseeitscorepoliticalsupport,drawnlargelyfromthecountrysnewmiddleclasses,continue.YetitsapproachtotheGeziParkprotestmaymeanthattheoppositiontoitspoliciesremains,occasionallygeneratingperiodicdisruptions,evenasitlacksthestrengthtodisplacetheincumbentpartyattheballotbox.InBrazil,alongstandingconsensus-basedmodelmayreducetheintensityoffutureprotestsbutpavethewayformorewithin-systempoliticalchallengersovertime.Wesurmisethattheseflashmobprotestmovementsmayserveasmid-cyclereferendaonincumbents,reducingtheirroomformaneuverandwillingnesstoundertakeunpopularpolicymeasures,suchasreforms.
Havingsaidthat,notallEMeconomiesareexperiencingVoxPopuliriskinitsmostdisruptiveform.InChina,localstrikesandprotestscalledmassincidentsbyChineseauthoritieswerereportedtohavedoubledbetween2006and2010to180,000nationwide,accordingtotheWallStreetJournal11.Yet85%ofChinesereportbeingsatisfiedwiththeircountrysdirection,70%ratetheirlivingstandardsashigherthantheywerefiveyearsago,and67%saytheirpersonaleconomicsituationisgoodallatornearthetopofmorethan40countriessurveyedbythePewResearchGlobalAttitudesProject.12Thesesnapshotsofpublicopinionsuggestthat,despiteChinasgrowth,environmentalandgovernmentchallenges,theriskofanyJasmineResolutionmaybelimited.Nevertheless,Chineseauthoritiesappearmindfuloftheriskthatperceptionsoncorruptioncanposetogovernmentlegitimacy,judgingbyBeijingscrackdownonvisibleofficialcorruption.Andaspreviouslymentioned,thestrongcorrelationbetweeninternetpenetrationrates,aglobalizedeconomyandprotestssuggeststhatChinacouldseemoresuchactivityinyearstocome.
11 TomOrlick.UnrestGrowsAsEconomyBooms.TheWallStreet Journal, September 24, 2011 12 PewResearchGlobalAttitudesProject.GlobalIndicatorsDatabase.AccessedSeptember13,2013.
DespiteChinasrisingmiddleclass,ithasnot experienced Vox Populi risk events
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
31
VoxPopuliRiskandMarkets Fornow,globalmarketsseemremarkablyimmunetorisingVPR.Afterall,theMSCIACWorldequitybenchmarkistradingaroundall-timehighs(Figure18).TheUSVIXindex,sometimescalledtheinvestorfearindex,remainsdownaroundmulti-yearlows(Figure19).
Figure 18. Global Equity Prices Figure 19. US VIX Index
Source:CitiResearch,Datastream Source:CitiResearch,Datastream
Thisdoesnotmeanthatburstsofincreasedpoliticalriskcannotinduceburstsofglobalmarketvolatility,asweareseeingwiththeUkrainecrisis.However,thelonger-termmarketimpacthasgenerallybeenmorelocalized.So,globalinvestorsmightseethecurrentcrisisasareasontosellRussianassets.TheymightevenseeitasareasontosellEMassets.ButtheydonotitasareasontoselltheS&P.Ifanything,volatilityinriskierpartsoftheworldseemstobeincreasingthedesirabilityofassetsinthemorestableDMeconomies.RapidlyrisingLondonhousepricesareclearenoughevidenceofthattrend.
WhyaremarketstreatingVPRasalocalizedratherthangloballysystemicissue?Thismightreflectthepalliativeeffectofcheapmoney.Centralbankshave(intentionally)boostedassetpricesthatcouldotherwisehavebeendamagedbyhigherpoliticalriskpremiums.Fornow,globalmarketsseemmoreinterestedinJanetYellensnextmoveonQEthanVladimirPutinsnextmoveinUkraine.Maybethiswillchange,butonlywhenwehaveseentheendofDMnear-zeropolicyratesandopen-endedliquidityatthoseextraordinarilylowrates.
Forthoseperplexedbythisapparentinvestorcomplacency,wewouldhighlightthatmarketscangiveaskewedperceptionofwhatmatters.ThisismadeveryapparentinFigure20.Herewerankcountry/regionalequitymarketweightingsagainsttheireconomicimportance.Wealsoshowtheirpercentageoftheglobalpopulation.TheUSdominatesglobalequitymarkets,accountingfor49%ofmarketcap.Italsoaccountsforameaningful,ifnotdominant,22%ofglobalGDP.However,itonlyaccountsfor6%oftheworldspopulation.
140
190
240
290
340
390
440
95 97 99 01 03 05 07 09 11 13
MSCI AC World Index
0
20
40
60
80
95 97 99 01 03 05 07 09 11 13
VIX
Markets seem relatively immune to rising Vox Populi risk
Volatility in riskier parts of the world seems to be increasing the desirability of assets in more stable DM economies
Central banks have boosted asset prices that could otherwise have been damaged by high political risk premiums
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
32
Figure 20. % Weighting In Global Equity Market, GDP And Population
Source:CitiResearch
Bycontrast,EMeconomiesaccountforonly10%ofequitymarketcapbut81%oftheglobalpopulation.So,bydefinition,anyanalysisofVoxPopuliriskisgoingtocaremostaboutwhathappensinEM.Afterall,theyaresomuchmoreofthepopuli.However,wethinkinvestorsaregoingtocaremostaboutwhatshappeninginDMeconomiesandtheUSinparticular.ThatswhyitseasiertoseetheimpactoftheLehmancrisisinFigure18thantheArabSpring.Investorsaredoingwhatcomesnaturallyworryingaboutwhatmatterstothem.
Thisdoesntmeanthatmarketscantbemoreseriouslyaffectedbyelevatedpoliticaltensions,especiallyinmoresystemicallyimportantDMeconomies.Forexample,globalequitiesfellby25%in2011onfearsofaEurozonebreak-upandsubsequentsovereignandbankinsolvencies.Risingpoliticaltensionsintheperipheralcountriescontributedtothesell-off.EventhemightyS&PwobbledinresponsetoeventsonthestreetsofAthens.
However,evenherecentralbankactioncametorescue.EversinceECBpresidentMarioDraghisaidthathewoulddowhateverittakestopreservetheeuro,theabilityofEurozonepoliticalchaostodragdownglobalmarketsismuchreduced.GlobalinvestorsnolongeraskusaboutthelatestgovernmentcollapseinItalyorriseofextremisminGreece.Thesearestillveryrealpoliticalthemes,itsjustthemarketsseemtocareaboutthemmuchless.
TheUSfinancialcrisisof2008-09andtheEurozonecrisisof2010-12boththreatenedtheveryintegrityoftheworldsfinancialsystem.Thatiswhatmadeglobalinvestorstakenotice.Thefactthatcurrentheightenedpoliticalriskshaveshownlessabilitytomoveglobalmarketsreflectsthatinvestorsdonot(yet)seethemrepresentingsimilarsystemicfinancialthreats.
Indeed,wesuspectthatrobustglobalmarketsmayactuallybeaddingtoVoxPopulirisks.Risingassetpriceshavemadetherichricher.Thetrickledowntotheother99%isprovingmoreelusive.InDMeconomiesstockmarketshaverisenmorethanunemploymenthasfallen.Wealthgapshavewidened.Thereisabroadperceptionthattheresponsetothefinancialcrisishasbenefitedtheelitesmorethantherest.
0
10
20
30
40
50
60
70
US EURxUK UK JP PACxJ CEEMEA EMASIA LATAM
MCAP GDP in PPP Population
Although more of the population is in emerging markets, investors care most aboutDMasitsalarger%ofmarketcap
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
33
Thishasaddedtowell-establishedgrievancesaboutrisingincomeinequality.ManygoodDMbluecollarjobswerelostasglobalizationshiftedlargepartsofthemanufacturingbasetolower-costEMeconomies.Thebargainingpositionoflower-skilledworkersinDMeconomieshasbeenfurtherunderminedbylooseningimmigrationpoliciesandthesubsequentinflowsofcheaperlabor.Ofcourse,manyhavebenefitedfromthepositiveimpactofglobalization.Inparticular,hundredsofmillionshavebeenliftedoutofpovertyasEMworkershavegainedaccesstohigher-paidjobs.DMshareholdershavebenefitedaslowerlaborcostshaveallowedcompaniestokeepprofitmarginshigh.ButthishasputpressureonDMwages.Forexample,theUSmedianhouseholdrealincomeshavegonenowheresincethemid-1990s.Abroadsenseofrisinginequalityhasprovenafertilehuntinggroundforpopulistpoliticians.
Overallitseemsthat,unlesseventsreallyescalate,globalmarketswillbeabletolocalizeperiodicoutburstsofVPR.However,theEurozonecrisisshowedusthatthefocusonpoliticalriskcanrisesharplyifinvestorsseetheprospectofamoresystemicthreattoglobalmarketstability.Inthemeantime,theongoingthemesofhigherassetpricesandglobalizationhavecontributedtoawideningsenseofincomeinequality.SoeventhoughglobalmarketsmayseemremarkablyimmunetoVPRrightnow,webelievetheyareindirectlycontributingtoit.
While,fornow,globalmarketsseemabletowithstandrisingVPRatamacrolevel,wecanseesomemoremicroimpacts.GreaterregulationofthedeeplyunpopularBankingsectorhasaffectedprofitability.Morescrutinyofthesectorsfrequentmisdemeanorshasbeenaccompaniedbyincreasinglypunitivefines.Windfalltaxeshavealsobeenimposed.Overall,however,ananti-capitalistbacklashhasnotreallymaterialized.Postthefinancialcrisis,globalcorporationtaxrateshavefallen,notrisen.Governmentshavebeenmoreinterestedinattractingmultinationaljobsthantaxingtheirprofits.InEMcountries,resentmentofcronycapitalismhasemboldenedgovernmentattemptstobreakembeddeddomesticmonopolies.Inthosecompaniesthatarelisted,shareholderscouldloseoutalongsidetheoligarchs.
Global markets will be able to localize periodic outbursts of Vox Populi risk
Although the effect may not be seen on the macro level, increased regulation on the micro level is having an effect
-
CitiGPS:GlobalPerspectives&Solutions May2014
2014Citigroup
34
VoxPopuliRiskinResourceEconomies:ChallengestotheRentierStates Thecomingyearlookstobeoneofwideranddeeperstrainforpetro-statescountrieswhosegovernmentrevenuesareparticularlydependentonoilandnaturalgasexportsgiventheoutlookformoderatelyifnotsignificantlyloweroilprices.Thefactorsthatgaverisetotheso-calledArabSpringhavebecomeamorepermanentpartofthedomesticlandscapeformanyifnotmostpetro-states,andcontinuingpressuresforgovernmentstospendtheirwaytolegitimacyandauthoritywillgrowiflowerpricescauserevenuegapstowiden.
TheUSEnergyInformationAdministration(EIA)estimatesthatlastyeartotalOPECrevenuesamountedto$940billion,$42billionlessthanin2012,andthatestimatedOPECrevenuescouldfalltoalittlemorethan$900billionthisyear,adropofover$80billion,or8%,injusttwoyears.Onapercapitabasis,thatsadeclineof$351,or11%,overthesameperiod.Thisisaresultofrisingpopulations,fallingpricesandstagnantproduction.
Theunderlyingfactorsgivingrisetothepredicamentthesecountriesarenowinhavetheiroriginsintherelativelydistantpastthe1970s,thedecadeinwhichOPECcameintoitsown.Thesharpriseinoilpricesafterthe1973YomKippurWarwasaccompaniedbyadecadeofnationalizationofoil-producingpropertiesandtightenedgovernmentcontroloverthepetroleumandnaturalgassectors,withtheOPECcartelputtingafloorunderpricesthatboostedtherentsreceivedfromlow-costproduction,creatingtheconditionsforrentierstatestoflourish.BeforetheuprisingsinNorthAfricainthewinterof2010-11,thesecountriessuccessfullysurvivedseveralperiodsofsharplylowerprices:1981-82,1985-86,1989-90,andespecially1998-99.Butthesurgeinpricesoverthelastdecadegaverisetoafalsehopethatthesecountriescouldavoidreformandspendtheirwayoutofdifficulty.Severalnewfactorsmakeitclosetoimpossibleforthistohappenasoilandgaspricesstabilizeandappeartobeweakening.
UnderlyingconditionsinmanyoilproducingcountrieswiththenotableexceptionofNorwayintheOECDandthesmallercountriesintheGulfCooperationCouncil(Kuwait,UAE,Qatar)areskewedtocreateproblems.Theseincluderapidpopulationgrowth,fallingpercapitaincome,starkincomeinequality,highlevelsofunemploymentandanincreasenotjustintheawarenessofopportunitieselsewhereintheworld,butalsoofsocialmediaandanabilitytocommunicateinternallyandinternationally.Tribalandreligiousschismsexacerbatetheseothertrends.
Figure 22. MENA Countries: Young and Unemployed
Source:CIAWorldFactbook,CitiResearch
05
1015202530354045 Median age
05
10152025303540
% unemployment
Lower oil prices are a particular worry in petro-states
Figure 21. Fiscal Oil Breakeven Prices for Selected Countries ($/bbl, 20112014)
2011a 2012a 2013a 2014e Qatar 38 42 46 46Kuwait 44 49 54 58SaudiArabia 77 74 84 88Oman 78 80 94 104UAE 92 79 68 67Libya 183 89 99 100Iraq 93 95 99 93Russia 100 115 118 112Iran 84 130 140 143Bahrain 111 115 119 117Algeria 111 120 113 113Venezuela 140 170 165 156Yemen 195 237 215 201
Source:CitiResearch
-
May2014 CitiGPS:GlobalPerspectives&Solutions
2014Citigroup
35
Allofthepetro-states,fromRussiatoVenezuelaandacrosstheMiddleEast,havetriedtodealwiththeseproblemsbyspendingathomeandmostofthemareunderrisingpressurestoboostincomegrowth.Inpetro-statesitismoreeasilyachievedthroughfasterrentconsumptionfromhigherextractionrates,orhigherpricesthanthroughdifficulteconomicreforms,especiallyreformsthatcurbdomesticenergyuse(endingpricesubsidies)orpromoteeconomicgrowthandemploymentoutsidethepetroleumsector.Duetopricesubsidies,fuelpricesinmanyofthesecountriesareverylow,drivingsomeofthemostrapidconsumptiongrowthratesintheworld.Inaddition,slowprogressindevelopingmorenaturalgasresourceshasmeantmorecrudeoilisburntdirectlyforpowergeneration.Curbingdomesticenergyuseintransportationanddevelopingalternativestodirectcrudeburnforpowergenerationcouldfreeupoilformorelucrativeexportrevenues,butthesemeasuresremainpoliticallydifficult,keepingthepressureontogrowincomefromtargetingprices.
Figure 23. Project Breakeven Costs for Planned IOC New Developments to 2020
Source:CitiResearchestimates
OPEChashistoricallysustainedrevenuebyagreeingproductionquotasenablingthegroupasawholetoputafloorunderpriceswellaboveOPECsverylowcostsofproduction.Butrisingsocialwelfarerequirementsarestretchingthebudgetsofalltheproducers.
RumailaGumustKakapSBJ
WestQurna1
JohanSverdrupZubair
CepuExpBauna/Piracaba
WhalesPark FrancoLula
PaodeAcucarLuciusSapinhoa
IaraTempaRossa MarsB
TEN NeneMarineThuderHorsePh2 AppamattoxChinaOffshoreOilBigFoot
PapaTerra ChiragOilLokicharCarioca
MafumeiraSulHalfayaEagleFord
KBB NiobraraTengizExp
Bl.15/06WestClairPh2
Shenandoah Libra BakkenStones MadDog2
CLOV BongaSW/AparoUgandaBl.1,2,3Bosi
ZabazabaBucksin Permian
Junin5CaraboboTrebsTitov
JackStMaloMohoNord Utica HorizonExpansionKaskida YTKaombo
Bl.31SENarrowsLakeSunrisePh2JohanCarstberg
CarmonCreekKearl AOSPDebottle
MackayRiver2 Rosebank
Goliat FortHills
KashaganPh1
0
20
40
60
80
100
0 2 4 6 8 10 12 14 16 18 20 22 24 26
Cost
and
Fisc
al Br
eake
ven
(Bre
nt U
S$/b
bl)
2020e Net Production, Mboe/d
Deepwater GoMW.Africa
US shale oil
Lowcost conventional giants: Brazil, Norway, Iraq
Can. Heavy Oil Kashagan
Producing country crude oil fiscal
breakeven price 2014 ($/bbl)
Qatar
Kuwait
SaudiArabia
top related