Expert Commentary

The Risk Landscape for 2015

This past year has proven to be challenging for risk managers on a variety of levels. While the US economy has continued to improve, Europe remains in the doldrums, and China has slowed down considerably, with collateral economic impacts throughout the world. Conflicts continue to rage in the Middle East, extremist groups are proliferating in many parts of the world, and Ebola remains a looming global threat. This has made the planning process more challenging for risk managers and more difficult to get right. The ability to accurately predict what will happen in the short term, of course, has a profound impact on the risk management landscape. Given all that is going on in the world, what should risk managers expect in 2015?


Political Risk
November 2014

The United States should expect decent growth of 2.0–2.5 percent next year, but this will be tempered by reduced global trade flows. Although Europe has been giving some signs of life in recent months, growth should remain tepid, at best—particularly given the expected continued decline in growth in China. Brazil and Russia should continue to struggle, while India should start to benefit in earnest from Prime Minister Modi's rule. The jury will be out in Indonesia, but its new president has some real challenges ahead of him. In short, economically, global growth will be a mixed bag, and there will be more headwinds than tailwinds in the short term.

The Middle East will naturally remain a cauldron, but this month's announcement that al-Qaeda has agreed to partner with the Islamic State (IS) in Syria will up the ante for the United States and coalition forces. In the absence of a serious ground game (which will not happen), there is little reason to presume that the IS will not strengthen next year. The opposite appears to be the case, which will put additional pressure on Iraq and surrounding countries. There does not appear to be a good case to be made that Mr. Assad either will or should be removed from power (if that were even possible). More than likely, in the longer term, a partition of the country seems more realistic.

We should expect more bluster to come from Russia. At this point, the gloves are clearly off; we already have a new Cold War. Russia will undoubtedly tighten its grip on Eastern Ukraine. Given that Russia and China have signed two large natural gas deals this year, we should expect relations between them to strengthen, at least in the near term. Longer term, there is plenty of room for conflict between the two, including competing military aspirations to mutual interference in the other's sphere of influence. For now, at least, Mr. Putin has found an alternative buyer for some of the gas Russia has been selling to Europe, which implies a continued frosty relationship between Russia and the European Union.

President Rousseff will continue to have a difficult time turning the depressed Brazilian economy into the juggernaut it should be. The Brazilian people made the wrong choice, in my opinion, by reelecting her. We should expect more of the same—low growth rates, rising inflation, and a generally lukewarm economy. We should also expect Mexico to experience a challenging year, now that the shine has worn off President Peña Nieto, and he moves into the less productive period of his presidency. Persistent drug violence, reduced oil revenues, and a slowing economy will conspire to make things difficult.

More generally, for oil-producing countries, next year is likely to be a real problem. With oil prices predicted to continue to slide, the vast majority of producing countries will fall well below the basis upon which their national budgets are based. For some, this could prove disastrous. The result is likely to be an increased propensity for civil unrest, as a result of governments' failure to be in a position to deliver on some of the promises made to their people. This will be most pronounced in those countries where citizens have come to rely on government subsidies for such things as gasoline and housing.

Conclusion

In short, there is reason to believe that 2015 could be the most challenging year for risk managers since the onset of the Great Recession. The world is tightening its collective belt, with some governments talking about renewed rounds of austerity, which will not sit well with voters. With the Republicans taking over control of the Congress and President Obama entering a lame duck period in his presidency, we should expect even greater partisanship and even less to get done than has been the case over the past 2 years. That does not bode well for the United States or the world. So, risk managers, buckle your seatbelts—2015 should be a wild ride!

*Daniel Wagner is CEO of Country Risk Solutions and author of the book Managing Country Risk.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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