Volatile emerging markets top risk for 2013, India at 9th: Eurasia Group

Jan 15 2013, 14:26 IST
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India's difficult policy-making environment will be the ninth biggest risk for global economy in 2013. (Reuters) India's difficult policy-making environment will be the ninth biggest risk for global economy in 2013. (Reuters)
SummaryIndia's difficult policy-making environment will be the ninth biggest risk for global economy in 2013.

India's difficult policy-making environment will be the ninth biggest risk for global economy in 2013, while increased volatility across emerging markets will be the top-most risk for the year, a new study has said.

As per the study conducted by Eurasia Group, the world's leading global political risk research and consulting firm, the second biggest risk in 2013 for the global economy could be China's fight against flow of information, including those from the cyberspace.

The others on a list of ten biggest risks, as compiled by Eurasia report, include 'Arab Summer' at third place, followed by issues related to Washington Politics (4th), JIBs – Japan, Israel and Britain (5th), Europe (6th), East Asian geopolitics (7th), Iran (8th), India (9th) and South Africa (10th).

About India, the report said that the country "in 2013 will be one of the prime examples of the intrusion of political factors into what had been until recently seen as a long-term economic success story.

It said that India's emergence as the world's next 'growth uber alles' (the biggest growth engine) could not be so fast.

"In 2013, the ability of the government to implement robust economic policies will decline even further, perpetuating India's 'stalling or falling' outlook.

"As general elections draw closer, political opportunism and obstructionism will increase. Any support for reform from the fickle regional parties that hold the balance of power in Parliament will likely wane," it added.

Fearing that "poor policy-making will extend to fiscal policy", Eurasia group said that any meaningful fiscal consolidation would be unlikely this year in that case.

"The best of circumstances, the political context for economic reform might improve following the elections (scheduled for 2014).

"But, at this point, the more likely outcome is that India's policy-making environment becomes even more difficult as the poll is expected to return a more fractious and divided Parliament, generating a weak ruling coalition without the political support for a strong reformist push," it added.

The report said that political risk has come to the fore across the world while dealing with the worst slowdown since the great depression, and "geoeconomics now sits alongside geopolitics in matters of war, peace, and prosperity."

"Whether staring over the fiscal cliff, battling the eurozone crisis, trying to profit from a rising China, or taking cover from the Middle East; around the world, politics has come to dominate market outcomes," it added.

About the top-ranked risk, Eurasia said that emerging market growth in past few years has kept the trade moving, commodities prices afloat, and offered attractive investment opportunities.

"But in a tougher overall growth environment where the US economy looks like a better bet and the potential for explosive risk in the euro-zone goes away, concerns over emerging markets and their future will again receive closer attention.

"Emerging markets will have much more volatility and instability than advanced industrial democracies," it said.

On 'Arab Summer', it said that the wold was talking about an Arab Spring barely more than a year ago.

"Middle East dictators were facing a wave of domestic dissent; international observers wondered whether it could be that the 'end of history' from Eastern Europe and the former Soviet Union would come to the Middle East.

"That has morphed not into 'Arab winter', where dictators rebound and consolidate power, but a long, hot, Arab summer – with radicalised movements, sectarian and Islamist, playing a much more important role," it added.

About the fourth-ranked Washington Politics, Eurasia group said that "2013 should be a year for reform progress and renewed economic dynamism in the US... But every silver lining has a dark cloud, and dysfunctional American politics will weigh on both the economic recovery and the president's legislative agenda."

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