Uncertainty: At an all-time high?

Uncertainty: At an all-time high?

Uncertainty: At an all-time high?


Sleep is optional for policy-watchers these days. And these days, just about everybody is a policy-watcher. Why the mass sleep-deprivation? Well, policy uncertainty is reaching new heights. That’s really saying something, given the major moments of uncertainty the world has seen in recent history—like the global economic and financial crisis of 2008-09 and subsequent 2011 European crisis; 9/11 and the Gulf wars; the Asian financial crisis of 1998; recessions, oil crises, wars in various arenas, the Great Depression itself. Against these earth-shaking events, apparently measured uncertainty is now higher. What does it look like, and what does it mean for exporters?

Recent measures put populism on a rapid trend increase since 1998. The Guardian/Rooduijn index shows a rise in far-left, far-right and “other” populism over the past 20 years that is, at the very least, alarming. A longer view of the issue, created by Bridgewater Associates in a refreshingly comprehensive treatise on modern populism, shows that with the exception of the two world wars, measured populism hasn’t got a peer anywhere close to it, with the exception of the Great Depression.

A more direct measure has been created by the analysts at Economic Policy Uncertainty (EPU). Their global index, which covers 18 countries that account for two-thirds of global GDP and reaches back to 1997, has today’s economic policy uncertainty higher—by a long shot— than in any other episode in that timeframe. In fact, the average for 2019 is more than double the average level over the entire series. Moreover, run a trend through that data, and it’s plain that the growth in uncertainty is accelerating. It’s bad enough that it’s high; it also seems to be out of control.

What’s true at the world level is also true for almost all of the largest economies in the index. The 2019 index levels for the United States and Europe are 45% and 40% above the series average, respectively. Of these, uncertainty is understandably highest in the United Kingdom, where this year, it stands 82% higher than the historical average. Note that the most recent calculation doesn’t include the appointment of Boris Johnson to Prime Minister, and his subsequent hard-line Brexit messages—so in the U.K., there’s likely more to come. Japan’s current number is less extreme than its overall score, up only 16% from the series average. However, Japan’s economic policy has been very uncertain since the early 1990s, so 16% is, for them, relatively alarming.

The largest emerging markets are a tale of two extremes. India stands out from the crowd, actually posting a down-trend in economic policy uncertainty. Clearly, the achievement by Narendra Modi’s government of back-to-back majorities—a rarity for modern India—has enabled bold, forward-looking economic policy moves, and India’s people appear to like it. Measured uncertainty is currently 32% below average, and clearly falling.

Probably the single most dramatic result in the EPU research is the current China result. Here, to describe recent movement as an up-trend is a gross understatement. Current movement in China’s index stands alone in the world, up almost five-fold since 2014, and in 2019 is registering at about 300% over the series average—well over double the global average. For an authoritarian state with a strong image of—and incentive for—tight control, this is at the very least, very disconcerting…unless, of course, it is successfully deflected to external factors. The spike of the last few years coincides with fears of secular slowing, wobbles in China’s financial sector and U.S.-China trade friction, and it seems the general Chinese public is watching.

News of higher uncertainty isn’t surprising, but the speed of change and the current level of measured uncertainty are together, eye-popping. Small wonder investors in hard business assets, like physical plant, equipment and machinery, are holding off, parking their cash until things settle down a bit. Not just among the wealthy nail-biters in the Organisation for Economic Co-operation and Development (OECD), but most dramatically in the world’s emerging market powerhouse.