Political instability increases economic risks
World trade is increasingly exposed to risks due to a state of flux in the world order. At the Coface Country Risk Conference, political professor Stefanie Walter highlighted the developments that have a significant impact on global business relationships.
One of the reasons economic risks are increasing is that pressure on the current world order is increasing, according to Stefanie Walter. And this trend was apparent even before the Ukraine and Corona crises. The Professor for International Relations and Political Economy at the University of Zurich explained the interplay between these factors at the Zurich Country Risk Conference held by Coface Switzerland.
“Pressures on the current order come from both outside and within the western core,” said Stefanie Walter. The western core refers to countries that form the G7 group and are among the traditionally most important global industrial nations. This very definition is however disintegrating in the face of the growing power of the BRIC countries of Brazil, Russia, India and China.
It is estimated that the G7 countries will be overtaken by the BRIC countries in terms of gross domestic product by 2040. According to Stefanie Walter, there is growing dissatisfaction in emerging economies that their power is not adequately reflected in the international system. At the same time, the development of a competitive spirit is driving new networks: for example, China and Russia are working on an alternative to the SWIFT payment system. Another challenge is the fact that ever more governments around the world are moving in an authoritarian direction, according to studies.
From within, the system faces nationalism and criticism of globalization, said Stephanie Walter, explaining: “The multilateral system itself is under pressure.” Institutions like the World Trade Organization (WTO), as the guardians of free, rule-based world trade, are severely weakened, and it is difficult to ensure that disputes are settled properly. Ultimately, she said, there are signs of a decline in the overall approval of liberal and even democratic values in many western countries.
Stefanie Walter went on to emphasize that the level of globalization and worldwide cooperation is still high despite these trends. Current challenges highlight the risks associated with close international ties, but also their value and benefits, she said. And that also applies to the democratic system. “As we saw in the Corona crisis, autocracies can implement decisions quickly. But democracies have the decisive advantage that they are anchored in the population,” said Walter.
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