A surge in inflation and an economic decline could revitalize populist movements across the region
MNCs should expect to see strong underperformance in Europe as part of their EMEA portfolio and a limited ability to offset the loss of sales in the CIS. Furthermore, a downside scenario and the return of European populism will weaken investor sentiment and result in a decrease in policy predictability. However, a higher-than-expected surge in inflation may prompt the government to increase state intervention to protect consumers and businesses, which may sustain demand levels over the longer term and create some pockets of opportunity.
The persistent risk of a downside scenario and elevated consumer prices will likely lead to resurfacing political tensions. Victor Orban’s decisive victory in the Hungarian elections highlights the resilience of European populist movements. The surge in inflation in a downside scenario will likely revitalize European populist political movements.
Our base case for European markets assumes stagnation in the pace of the recovery from 2021 that will continue to linger well into 2023. The downside scenario, however, which may be prompted by a complete suspension of Russian energy exports into Europe, will translate into a notable contraction that will have substantial long-term political consequences. While Russia’s war in Ukraine has undermined the popularity of many European populist movements, given their close connections to Russian President Vladimir Putin, a surge in inflation and an economic decline will likely bring domestic economic issues to the forefront of political discourse, revitalizing European populism. In this scenario, the likely return of Italian populist Matteo Salvini as a head of a new government in Italy or political protests in France or Germany could force both national governments and the EU to increase the level of state intervention into the economy to support affected consumers and businesses. While this should sustain domestic demand and prevent a long-term structural economic decline, it will lead to substantial changes in government spending priorities, may delay certain investment initiatives, and further undermine European unity and cooperation in policymaking. While many governments in Central Europe, notably in Hungary and Poland, remain more politically insulated, despite their economies being substantially more vulnerable to the shock, the political fallout of a downside scenario across Europe will likely pave the way for stronger and more intense confrontations with the European Commission (EC) over issues regarding the rule of law, which may further erode investor sentiment.
At FrontierView, our mission is to help our clients grow and win in their most important markets. We are excited to share that FiscalNote, a leading technology provider of global policy and market intelligence has acquired FrontierView. We will continue to cover issues and topics driving growth in your business, while fully leveraging FiscalNote’s portfolio within the global risk, ESG, and geopolitical advisory product suite.
Subscribe to our weekly newsletter The Lens published by our Global Economics and Scenarios team which highlights high-impact developments and trends for business professionals. For full access to our offerings, start your free trial today and download our complimentary mobile app, available on iOS and Android.