Global Risks Coming To A Head In 2017

Although it is still more than two years away, it seems clear to us that 2017 will be a politically important year, due to the busy schedule of events in key countries.

United States' Next President To Be More Assertive Abroad

On January 20, 2017, a new US president will take office, succeeding Barack Obama. Although it is far too soon to say who that person will be, it seems probable that he or she will be more assertive in terms of foreign policy than Obama, who has generally sought to limit US military interventions abroad. Washington's attempts to rebuild American global influence could thus increase strains with countries that have become accustomed to a relatively non-interventionist US foreign policy, such as Russia and China.

EU/Eurozone To Face Major Tests

In April-May 2017, France will hold a presidential election, in which Francois Hollande will struggle to win a second term. In fact, he may not even make it into the second round. A key risk is that the National Front candidate, Marine Le Pen, secures a place in the run-off, just as her father Jean-Marie did in 2002. A strong showing by Le Pen would boost the fortunes of far-right or populist parties across the continent.

Germany will also hold a general election in September 2017. It is unclear if Chancellor Angela Merkel will seek a fourth term, or whether her Christian Democratic Union will win the vote, but the outcomes of both the French and German elections will be crucial for the future of the eurozone and EU, given the centrality of the Franco-German relationship to the European project.

Thirdly, the UK may hold a referendum on its future membership of the EU, if Prime Minister David Cameron retains power after the general election of 2015. If the referendum goes ahead, and opinion polls show a realistic prospect of Britain leaving the EU, this will send shockwaves across Europe, for no country has ever left the Union.

Iranian Issue Coming To A Head

In June 2017, assuming that there is no political upheaval or war with Israel/the US before then, Iranian President Hassan Rouhani will face re-election. Rouhani, a moderate conservative cleric, arguably represents the best hope for pursuing a rapprochement with the West, but there are doubts about his ability to achieve this, due to firm opposition from hardliners. If Rouhani fails to improve economic conditions by 2017, he would face an uphill battle. Counting in Rouhani's favour, every Iranian president since the 1980s has served two terms – but there is always a first time for a single-term president. Another complicating factor is the health of Supreme Leader Ayatollah Ali Khamenei, 75, who has led Iran since 1989. If Khamenei becomes incapacitated or passes away, a power struggle between hardliners and moderates would intensify, making Iran more unstable at a critical juncture.

China And Hong Kong Could See More Instability

In early 2017, Hong Kong will hold elections for the post of Chief Executive, which, depending on how the current protests in the city play out, will be fully competitive or heavily managed by Beijing. If the elections are not fully free and fair, then we can expect to see new protests in the run-up to and in the aftermath of the vote. The year 2017 will mark the 20th anniversary of Hong Kong's return to China from Britain, so it will be symbolically important for the territory.

Political risks in Hong Kong could also spill over into China in 2017, if this does not happen before then. The Communist Party of China will hold its quinquennial congress in the autumn of 2017, and will present General Secretary (concurrently president) Xi Jinping with a further opportunity to consolidate power. However, he may come under greater criticism if the Hong Kong issue is not resolved satisfactorily by then, and if the economy has slowed further, as we forecast.

We will thus be watching particularly closely for signs of a power struggle ahead of the Congress.

Elsewhere in East Asia, South Korea will hold presidential elections in December 2017. President Park Geun-hye is ineligible for a second term, so the conservative and liberal camps will both be looking for new standard bearers. The outcome will determine the South's policy towards the North (assuming the latter still exists), and a liberal victory would be more conducive to a rapprochement between Seoul and Pyongyang.

Russia Prepares For Putin's Re-election

Towards the end of 2017, we will likely see more political risks in Russia, as President Vladimir Putin prepares to run for a second 'second' term in the March 2018 election. By that time, many Russians may be chafing under greater authoritarianism under Putin, and weaker economic conditions. Even if current Western sanctions on Russia as a result of the Ukraine conflict had not been imposed, we would still have a bearish outlook on the economy as a result of the lack structural reforms. Russia's opposition forces will thus have a rare opportunity to pose a major challenge to Putin, and if the vote is not deemed free and fair, then more protests could erupt, as his opponents seek to stage an 'orange revolution'.

Assumptions

The above speculations assume that current leaders do not pass away from unpredictable health problems, as befell Venezuelan President Hugo Chavez in 2012-2013. It also assumes no systemic shocks (e.g. mass upheavals, interstate conflicts) to the countries in question. Finally, although we highlight 2017 as a crucial year, some of the issues discussed above could come to a head well before then.