From the US-China trade war to Trump’s impeachment inquiry and Brexit, record levels of political uncertainty are battering the global economy
- Geopolitical tensions and rising protectionism are pushing global uncertainty indices to, or near to, record highs, leaving world economic growth and trade teetering on a knife edge
Uncertainty is the No 1 enemy of investment markets. That is why indices devised by social scientists to measure and quantify uncertainty in the marketplace are highly sought after by investors and decision-makers.
In an apparent reflection of the US-China trade row, the global trade policy uncertainty index started to rise in the third quarter of last year, coinciding with the start of the punitive tariff war.
Policy uncertainty indices have also witnessed record highs in the US and China. For example, the Economic Policy Uncertainty Index for China, developed by Scott Baker, of Northwestern University, Nick Bloom of Stanford University, Steven J. Davis of University of Chicago, and based on data in the Post, has gone up sharply since December 2017 and is over 900 points, the highest since it was first measured in 1995. It moved between zero and 400 points before 2017.
Growth in both the US and Chinese economies has seen an accelerated slowdown this year. US growth dropped from 3.1 per cent in the first quarter to 2 per cent in the second, and is expected to fall further, to 1.8 per cent, in the third quarter, according to the Atlanta Federal Reserve’s GDP tracking gauge.
China’s economic growth has decelerated at a quarterly rate of 0.2 percentage points this year: from 6.4 per cent in the first quarter to 6.2 in the second and 6.0 in the third quarter.
Policy transparency and stability are highly sought after by investors in their quest for certainty in forecasting outcomes. That is why they hate uncertainty the most and see politicians who create uncertainties as political enemies.
Cary Huang is a veteran China affairs columnist, having written on this topic since the early 1990s