WATCH: the geo-macro reality

The shocking events in the United States surrounding former US president and 2024 candidate Donald Trump confirm the political and economic environments are intertwined across the world in a way we haven’t seen for decades.

There’s been some time to assess the consequences of the attempt on Trump’s life and while there are immediate implications, and some that will be longer lasting, we need to avoid the temptation to view these implications as isolated.

The intersection of politics and policy has shifted such that political developments matter for economies. What has happened is the latest instalment.

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In 2024’s ‘year of elections’, the first half didn’t deliver much in the way of political surprises, but that has changed in the second half. In India, Narendra Modi’s Bharatiya Janata Party lost its parliamentary majority, the French snap elections saw the vote for National Rally surge, and current US President Joe Biden’s recent debate performance has already entered political folklore.

In one preview of this year, the Financial Times suggested in the first decade of this century governments were typically re-elected 70 per cent of the time, but in the latest decade that has fallen to 30 per cent.

There also seems to be increased prevalence of – let’s call them -- ‘grey’ election outcomes. Modi now leads a minority government, in France a coalition of some sort needs to form to start governing, and in Australia an election will be held by May 2025 and the polls suggest a minority government is one of the possible outcomes.

In this political environment, the economic policy context has also shifted. Governments are more involved in the economy.

Government spending is higher in most economies after the pandemic, and the scope of climate policy is broadening and becoming more impactful. Industrial policies, which target the structure of economic activity, have become more common, partly because of geopolitical developments. One measure has the number of industrial policy interventions globally rising eight-fold since 2017.

Change brings uncertainty, but we shouldn’t presume the associated policy changes will be economically damaging.

They can be. Brexit sufficiently impacted the UK’s trade and patterns of activity that there has been an economic cost. But President Duterte in the Philippines launched the Build, Build, Build program which doubled infrastructure spending to nearly 5 per cent of GDP.

Recall markets initially welcomed Trump’s election in 2016. In fact, the obvious start of this new political era is 2016, when the Brexit referendum and Trump’s election occurred. The global economy has managed through plenty of shocks over that period.

Governments change more often these days. And as governments are more involved in the economy, the associated policy changes are more significant. But with change comes opportunity.

Richard Yetsenga is Chief Economist at ANZ