U.S. unilateralism under Donald Trump, China's growing assertiveness and a weakened German chancellor, Angela Merkel, will make 2017 the "most volatile" year for political risk since World War II, according to Eurasia Group.
"In 2017 we enter a period of geopolitical recession," the New York-based company said in its annual outlook. International war or "the breakdown of major central government institutions" isn't inevitable, though "such an outcome is now thinkable."
With Trump's ascent to the presidency on an America First platform, the global economy can't count on the U.S. to provide "guardrails" anymore, according to Eurasia, which advises investors on political risk. Trump's signals of a thaw with Russia, skepticism toward the North Atlantic Treaty Organization and his "alignment" with European anti-establishment parties such as France's National Front could weaken the main postwar alliance protecting the global order, according to the report released Tuesday.
The warning is a reminder of the range of threats to stability in 2017, from elections in Germany, France and the Netherlands and Britain's planned exit from the European Union to setbacks in emerging nations such as Brazil and refugee crises.
Even so, the U.S. may be poised to gain strength, said Eurasia Group's president, Ian Bremmer.
"You could see an environment that geopolitically is by far the worst that we've experienced in decades in 2017 and yet the investment into the U.S. markets and the strength of the American dollar is going to grow," he said in a Bloomberg Television interview.
Chinese Challenge
In China, a scheduled leadership transition makes it likely that President Xi Jinping will be "more likely than ever to respond forcefully to foreign policy challenges," potentially leading to spikes in U.S.-China tensions, according to Eurasia. To maintain domestic stability, Xi might "overreact" to any sign of economic trouble, leading to a risk of new asset bubbles or capital controls, Eurasia said.
