Economic discontent sparks unrest

Wednesday 29 March, 2023

In summary

• Strikes bring Germany to a standstill, violence to the streets of France and impact Easter travel in the UK

• Geopolitical tensions remain elevated with the world appearing to split into spheres of influence 

• Financial market volatility may remain elevated given these risks

Financial markets, and associated headlines, have been largely concerned with the banking sector in recent weeks. Meanwhile, unrest has been fomenting on the streets of Western Europe. Germany has recently come to a standstill and here in the UK, industrial action has been ongoing for several months. Doctors, civil servants, train drivers and teachers have been among the disenchanted, and this is set to continue into the Easter holiday period with planned strikes by airport security workers. National strikes have been underscored by the growing discontent surrounding the rising cost of living. 

In France, it is not uncommon for a president to propose reforms and face backlash on the streets. For Emmanuel Macron it was in response to his divisive pension bill, which would raise the retirement age from 62 to 64. This was one of Macron’s main pledges when he was first elected in 2017 and recently, he pushed the bill through without a final vote by the National Assembly, resulting in an enraged nation. The national strike that ensued also resulted in violence on the streets of Paris, which shows little sign of abating. 

In times of economic growth, government policy changes are less likely to infuriate its population. However, as we write today, people are already highly unsettled by seeing their real spending power being squeezed. History tells us that this can lead to political instability and potential unrest. Last year, 50 out of the 58 significant anti-government protests around the world were specifically catalysed by rising prices. 

Global number of significant anti-government protests motivated by economic issues

Source: Carnegie endowment global protest tracker. The 2022 data is from January to November

 

Not only are governments dealing with issues within their borders, but also the increasing friction between nations. The fact that the President of China visited Russia, just as the Prime Minister of Japan was visiting Ukraine underlines the global significance of the war in Ukraine. This geopolitical event also provides an opportunity to broadcast allegiances. On one side is NATO and America’s military umbrella states, on the other, is Russia and China. 

Geopolitical uncertainty is high and can have a significant impact on financial markets at any given moment. At the same time, macroeconomic indicators have been giving mixed signals while the banking sector has faced challenges in recent weeks. This results in a more challenging backdrop for central banks to set policy amid stickier price pressures. To navigate this complicated macroeconomic picture, we believe maintaining a highly diversified portfolio of high-quality assets is key to managing these risks. 

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