In 2020, the Coface social and political risk indicator reached a record level of 51% worldwide and 55% in emerging countries.
These social movements will have repercussions on the economic activity of the affected countries, especially on foreign trade. Coface estimates that mass social movements have particularly strong and permanent negative effects on countries’ exports: in a year in which such movements take place, exports are on average 4.2% lower than the estimated potential.
The forms of social movements, their persistence and intensity, will therefore be decisive for international trade in the coming years.
“The pandemic has temporarily halted the intensification of social movements in emerging countries. But the devastating socio-economic effects of the health crisis have raised levels of social and political risk to a historic threshold. It is assumed that these pressures will result in a new wave of Uncertainty about political instability, declining confidence in economic agents, declining supply and industrial services in the area of supply and declining consumption are expected to have a significant impact on economic activities. , will probably be collateral victims.
We estimate that in the three years following a social movement, exports remain below 9% of their potential. If the movement has socio-economic demands, which is probably due to the pandemic, this slowdown in exports could be up to 20% lower, “said Samuel Adjutor and Ruben Nizard, economists at Coface.
A new wave of social movements on the horizon …
Most social movements take place in emerging countries, and their number increased between 2017 and 2019. Moreover, experience from previous epidemics and pandemics shows that social tensions occur, on average, one year after a health crisis. This resurgence of social discontent is explained by the devastating socio-economic effects of crises. The magnitude of the impact of COVID-19 is unmatched, which will be seen in the intensity of future social movements. Indeed, the global social and political risk, measured by Coface, has never been so great. In 2020, it reached a record 51% worldwide and 55% in emerging countries.
Specifically, social pressures for change have never been greater. In 2020, the social pressure index reached an all-time high, rising from 46% to 54% globally and, for emerging countries, from 54% to 61%. This increase is explained by the unprecedented deterioration of socio-economic indicators in most of the countries analyzed. As a result of the pandemic, living standards fell, as shown by declining GDP per capita, their purchasing power deteriorated, as evidenced by rising unemployment and inflation, and income and wealth inequalities deepened. . This is exacerbated in some countries by growing dissatisfaction with the management of the health crisis and restrictions on civil and political freedoms, which are sometimes seen as unfair.
In 2020, 88% of emerging market countries saw an increase in the level of risk associated with social pressures. It has grown substantially in some emerging Asian countries, such as Malaysia, India, Thailand or the Philippines, but also in some North African countries, such as Algeria or Tunisia.
… could affect international trade
The experience of past pandemics confirms that mass social movements have persistent negative effects on economic activity.
For at least a year and a half after a mass social movement, GDP growth remains one percentage point below its previous level. For emerging countries, this indicator may be even two percentage points lower.
These effects are translated on the supply side by a decrease in industrial activity and services, and on the demand side by the decrease in consumption. Consumer and business confidence is declining and uncertainty is rising. Moreover, the uncertainty associated with political instability increases transaction costs between the affected country and the rest of the world and reduces the incentives to enter into new trade relations or to maintain existing ones. Trade flows slow down or even contract: declining industrial activity disrupts exports and declining consumption affects imports. In the year of social movements, exports are 4.2% below the estimated potential. The gap remains substantial for three years, with exports remaining between 6.3% and 8.9% below their potential. The impact on imports is more marginal, with imports recovering faster.
The impact on trade will depend on the persistence, intensity and demands of social movements
The impact of a movement on exports and imports varies greatly. Several factors can amplify or limit the effects on trade: sectoral specialization, the country’s share in international trade, proximity to trading partners and the preferred mode of transport in bilateral trade flows. These elements may have negative effects on third countries, whether or not they are trading partners of the affected country. But the way the movements develop determines the magnitude and persistence of the trade shock.
Surprisingly, the duration and frequency of social movements are decisive. If the movement is an isolated event, the impact on exports and imports is marginal. Otherwise, latent political instability exacerbates mistrust and uncertainty, increasing trade costs and furthering export capacity. In this case, three years after the first move, exports remain, on average, about 14% below their potential. The size of the mobilization is also an important factor in this trade shock.
Finally, the type of demand plays a crucial role in the size and persistence of the shock.
Movements with purely political demands have even smaller transient effects on exports and imports.
Protests that include socio-economic demands and are therefore more likely to occur after the pandemic have more lasting and severe effects. In this case, three years after the shock, exports remain 20.7% below their potential and imports 5.6% lower. Moreover, the small room for maneuver in the economic policy of emerging countries to limit the effects of social unrest could amplify their impact on trade.
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