Conflicts, populism and Chinese slowdown will impact the world in 2016
PI Exclusive Report 2016-02-16Who took part in the panel
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Can China cause a new global downturn? |
Piotr Kalisz, Head of Central and Eastern Europe Economics with Citi Research, Citi Handlowy, Warsaw |
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What are the rising security threats? |
Jan Techau, Director of the Carnegie Endowment for International Peace, Brussels |
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Is populism the new normal in politics? |
Ivan Krastev, Chairman of the Centre for Liberal Strategies, Sofia |
Key points
Kalisz: rapid deceleration of Chinese growth. According to Citi’s chief economist for Central Europe, Beijing’s official government data (6.8 per cent in annual terms in Q4 of 2015) reflects an over-optimistic growth of the country's economy – while, in real terms, it could amount to around 4-5 per cent annually. The slowdown in China comes as a result of a growing private debt, which exceeded 200 per cent of GDP and cannot maintain the current growth pace. This, in turn, comes as the consequence of a change in the Chinese growth model, now based on consumption, rather than on investment, as it was the case in the past. Recession in 2016 is rather unlikely, however – in the worst-case scenario, Kalisz expects Chinese growth to amount to 2 per cent of GDP.
Slowdown reduced the price of assets. China's falling demand for imported goods will not affect Polish exports - only 4 per cent of Polish products are exported to that country (1 per cent directly). Developed economies (including Poland’s) could be, however, affected by falls in the price of shares and commodities. Despite the fact that investors have already accounted for a worse state of the Chinese economy, in the worst-case scenario presented by Kalisz, the pace of GDP growth in the eurozone and the US would fall below 2 per cent to under 1 per cent. This, on the other hand, would lead to a decrease in exports and investment, which would negatively affect the Polish economy. Chinese slowdown will mainly affect countries exporting commodities, especially if their budget revenue is highly commodity-dependent.
Techau: intervention in Libya unavoidable. According to the head of Carnegie's European office, EU countries cannot let the Islamic State maintain strongholds in close proximity to Europe. Techau said that one could expect EU’s military intervention in north Africa – in Libya or Algeria. In doing so, the West would attempt to create a firewall against Islamic extremists, who could be forced out of Syria and Iraq by the US-led coalition. In addition, Techau claims a threat of another terrorist attack in Europe is still real. He also conceded that the West failed to develop a strategy for the future of Middle East and has remained focused on an ad-hoc mitigation of damages.
Crisis of institutional trust. The EU no longer remains a point of reference for many countries, and that group also includes Eastern European countries. According to Techau, Germany is partly to blame, as for over a decade the country’s politics has been based on intergovernmental – not inter-state - agreements. As a result, faced with a possible fiasco of its strategy to deal with the migration crisis, Berlin is losing allies at a rapid pace. The head of Carnegie Europe believes that Angela Merkel’s position is growing increasingly weak on the domestic front, which additionally undermines her credibility on the European scene. According to him, the upcoming EurCou summit, devoted to migration, should help negotiate an additional relocation of migrants and strengthen control on the EU’s outer borders.
Krastev: populism to leave a permanent impression. The head of the Centre for Liberal Strategies in Sofia said that radical and populist movements would affect the rest of the political scene, even if they fail to secure electoral victory. According to him, even Germany is not resistant to an increase in the popularity of radical movements, which could have deep consequences for all of Europe - Krastev listed, among other things, Germany’s possible decision to abandon the leading role in the EU. The relations between Warsaw, Brussels and Berlin are, according to Krastev, crucial for the future of the EU. He also believes that today Brussels' influence on Polish politics is much lower than 10 years ago, as is Warsaw’s trust in EU institutions.
Hungary as a success of populism. According to Krastev, in case of Viktor Orbán’s government, some of the predictions made by his critics, who predicted a retreat of investors and downfall of economy, proved inaccurate. He called the Hungarian prime minister a brilliant politician, who is able to “dance on the red line”. Orbán was quite skilful in taking advantage of anti-establishment moods, pushing a moderate centre-right outside the political margin. Since the far-right Jobbik became the main opposition force, the Hungarian prime minister has met little opposition in trying to win over centrist voters. According to Krastev, before the mainstream parties return to power – not only in Germany – they need to prove that they can endure as opposition. 
Maciej Stefański contributed to this analysis.
