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25/01/2017

World Bank: Populism in US, Europe threatens emerging markets

Trade & Society

World Bank: Populism in US, Europe threatens emerging markets

Bad for business: Alternative für Deutschland chief Frauke Petry.

[Metropolico.org/Flickr]

The biggest threat to emerging markets growth in coming years could come from the rise of populism and isolationism in developed countries, a World Bank official said on Tuesday (18 October).

If such sentiment continues to proliferate in the United States, Europe and elsewhere, it would negatively impact trade and transmission mechanisms in emerging market economies, many of which are heavily dependent on exports, said Axel Peuker, director for the financial advisory and banking department at the World Bank.

And as developed market political leaders pull away from globalization it could catalyze similar sentiments from political leaders in emerging markets, he said, worsening poverty and income inequality.

“What role models will you find in developed markets as populism becomes more popular?” said Peuker during a global fixed income forum sponsored by ratings agency Standard & Poor’s.

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The growing popularity of isolationist candidates in Germany and other European nations and threats by US Republican presidential candidate Donald Trump’s to scrap trade agreements with Mexico and impose trade tariffs on China have stoked fears.

The growing popularity of isolationist candidates in Germany and other European nations and threats by US Republican presidential candidate Donald Trump’s to scrap trade agreements with Mexico and impose trade tariffs on China have stoked fears.

Peuker’s comments echo those made by the ECB’s chief economist Peter Praet, in December 2014, in the Boersen-Zeitung.

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“Populist parties in some countries promise quick solutions –- but they offer only recipes for disaster,” Praet warned at the time.

“Nobody should be under the illusion that you only need to return to the old system and everything will be better,” he argued.

Countries had signed up to the single currency because the old system of constant devaluation was not working.

“What is needed now is to make the much needed structural adjustments. A devaluation policy doesn’t solve structural problems,” Praet said.

There were institutional flaws in Europe which had to be resolved, the economist argued.

“We have a monetary union with a very strong central bank –- but the other institutions have been too weak,” he said.

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