And a populist New Year: global hopes and fears framework

Get ready for more populist governments. There is now sufficiently widespread backing for global populism that at least one further victory in a major economy is very likely in the next year or so, our analysis of populist policies and support in 20 large economies shows. While there are no populist electoral front‐runners, many large economies have elections coming up in which populists have a decent chance of capturing sizeable votes. If you roll the dice enough times, the populist number is likely to come up somewhere – there is now around a 50% chance of a populist government in one key Eurozone country; bookmakers' odds suggest an even higher probability. Donald Trump's victory showed how market reaction to populism is hard to predict. Our survey provides a framework for assessing the diverse and complex channels. We see limited possibilities of Trump‐like, populist‐propelled fiscal expansions elsewhere in the world, which are typically market positive. Even where populist‐leaning politicians have a chance of power, they have shown little appetite for fiscal expansion. Globally, populist policies are focussed more on immigration, trade, and governance, which are typically market negative. As such, populist electoral victories would imply modest downward revisions to baseline growth forecasts and risk greater instability. Populist electoral victories in Europe would result in unsettling brinksmanship and provide an existential threat to the EU, though compromise is the most likely outcome and subsequent risks are two‐sided. For example, (i) reductions in free movement in labour could make Brexit softer; (ii) populism could challenge unhelpful pro‐cyclicality in the Stability and Growth Pact.