Expert Risk Articles

Allianz Risk Barometer 2017: A year of shocks

Political (legal) perils and protectionism shape 2017 risk agenda

Companies will need to invest more resources into better monitoring politics and policy-making around the world in order to gather the economic intelligence
that will enable them to anticipate, and adapt to, any sudden “abrupt and massive” changes of rules that could impact business models, amid fears of increasing protectionism and anti-globalization.

Political and legal perils, such as changes in legislation and regulation (goverment change, economic sanctions, protectionism, etc.) (5th), political risks and violence (8th) and Brexit, Eurozone disintegration (16th), rank higher year-on-year in the Risk Barometer. Many expressed concern about the uncertainty surrounding the political and business landscape – and how this is impactingplanning – following the UK’s decision to leave the European Union and Donald Trump winning the US Presidential election – outcomes widely unexpected 12 months ago. Others said the results of 2017 elections in Europe could exacerbate the current situation. Protectionism or government intervention in business is perceived to be an increasing threat as well, according to Risk Barometer responses.

“Since 2014 we have seen about 600 to 700 new trade barriers being introduced globally every year, including in the service sector,” explains Ludovic Subran, Head of Euler Hermes Economic Research, Deputy Chief Economist of Allianz Research and Director of Macroeconomic Research. “We see these protectionist measures in emerging markets such as China, Brazil or Indonesia, but also coming from the US or UK.”

Subran believes protectionist measures will increase further and expects them to become more complex in their implementation. “There will be less obvious, brutal trade bans but more sophisticated measures which will make sure that somehow local companies are favored,” he says. New forms of protectionism in the financial services, food, pharmaceuticals and healthcare sectors are anticipated.

“Companies need to monitor and understand better the political, legal and regulatory environment in which they operate. It’s important for every company to better monitor public policy-making down to a local level and do more contingency planning and scenario building, including their subsidiaries in various regions. It’s no longer only about managing effects from economic cycles on your top line growth or revenue base, it’s preparing for potentially very abrupt and massive changes which may impact the way you do business. These can force you to change your risk management approach and partners.

They can force you to look on your operations with a very critical eye as it will become more difficult to do business in certain countries and regions.”

Trump, anti-globalization and economic pragmatism?

  Trump outlook
 “Opportunities and challenges,” says Subran.
 “Companies which are domestic, either a regional
 multinational or national, will benefit. However, the
 business environment for large multi-national
 corporations who do have global, strongly regionally
 diversified business models will be more challenging.
 Stronger regional interests will make the lives of companies more complicated as there will be increasing protectionist regulation.” Photo: iStockPhoto

  Further impact of anti-globalization trends
 “Global financing and capitalization will be more
 challenging for companies. Supply chain management
 might follow a more regional rather than global
 approach.” Photo: iStockPhoto

  The return of economic pragmatism?
 “We observe a return of pragmatism in business
 and economics. In the aftermath of the financial
 crisis there was an overinflation of new rules and
 regulation as there was no more trust in the system.
 So it will be interesting to see if there are more
 trustbased contracts between businesses. This would
 be a positive development because the problems with rules is that there are always ways to circumvent them and this undermines the level of trust.”
Photo: iStockPhoto