The 10 Biggest Risks The World Faces In 2013

ian bremmer

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“Political risk has entered our vocabulary,” writes Ian Bremmer pointing to the fiscal cliff, the eurozone crisis, and the turmoil in the Middle East.Every year, Bremmer, the head of Eurasia Group, publishes a list of the top 10 risks the world faces.  He also includes a couple of red herrings of which we should be mindful.

Believe it or not, Bremmer actually thinks that the world may be a little too worried about what’s going on in geopolitics.

“Looking to 2013, political risk in the developed world is now overstated,” he writes. “Despite the chaos in Congress–which we’ll surely see much more of in the coming year–concerns about the fiscal cliff in the United States have been overplayed. So too the fragmentation of the eurozone.  And the impact of continued zero growth in Japan.”

But this doesn’t mean we should be dismissive of the risks.

What follows are Bremmer’s top 10 risks for 2013, key excerpts from his report, and a list of the red herrings.

Click Here To See The Risks And Red Herrings >

Follow the Eurasia Group on Twitter: @EurasiaGroup.

1 - Emerging Markets: Not less risky

'Emerging markets will still have more volatility and instability than the advanced industrial democracies. Some still make good (if not safe) bets for the same reasons they have in the past--outsized growth potential makes 'tail risk' more acceptable, but the era of emerging market abundance is finished. So in 2013, it's critical to understand that emerging market downside differs wildly from country to country, and in many of them, in marked contrast to developed markets, that risk is 'unbounded.''

Bremmer breaks down the emerging market into three categories: becoming developed, still emerging, and backsliding.

Source: Eurasia Group

2 - China Vs. Information

'Over the past few months, we've seen the implications of an information society growing exponentially more rapidly than most expected. In the United States, nobody has the privacy they used to. Not New York residents with gun licenses having their addresses published after the Newtown tragedy; not ever larger numbers of leaders (CIA director David Petraeus and a host of congressmen) suddenly ousted following scandals that broke online; not Facebook CEO Mark Zuckerberg's sister randi when private family photos get posted online.

In the developed world, that's an annoyance, but the same trend in China has far more serious implications. In a Chinese economy that's increasingly information driven, a larger, better educated middle class needs access to information at work and expects it at home. Some of that info is directly undermining the political legitimacy of China's top leaders.'

Source: Eurasia Group

3 - Arab Summer

4 - United States

'But every silver lining has a dark cloud, and dysfunctional american politics will weigh on both the economic recovery and the president's legislative agenda. We are not predicting a politically induced new recession, let alone a major financial crisis. but political uncertainty over corporate taxes and a series of noisy brinkmanship episodes will generate a modest but real drag on growth.'

Source: Eurasia Group

5 - JIBs - Japan, Israel and Britain

'These countries find themselves in very similar positions-for three reasons. 1) Their special relationships with the united states no longer carry quite the importance, or centrality, that they used to. 2) They sit just outside the major geopolitical changes underway-and have few available means of playing a constructive role in them. 3) Key domestic constraints in all three countries (political, social, historic, and otherwise) make it particularly difficult for these countries to respond effectively to the challenges posed by these changes.'

Source: Eurasia Group

6 - Europe

'The weak economic outlook and the politics of crisis-fighting will remain sources of uncertainty and risk in 2013. Simultaneously, euro-scepticism is on the rise, and resistance to reforms is increasing given the protracted period of austerity in the absence of prospects for an economic turnaround. Big compromises will be needed to make further progress toward banking union, fiscal union, and an integrated policy framework. the ECB's floor under the crisis creates a negative incentive, given that in the absence of strong market pressure member states will be tempted to slow the pace of integration that compromise their sovereignty.'

Source: Eurasia Group

7 - Asia Geopolitics

8 - Iran

'There is a significant risk; it's just not the one people are thinking about. We're likely to see a sharp escalation in the shadow war between Iran and Israel and the united states--a cycle of mutual killings, cyber-attacks, and proxy battles--that has been ongoing for several years. This shadow war has the potential to rattle markets and put upward pressure on oil prices (though in a generally more bearish overall energy environment--see red herrings), and could lead Iran, feeling especially vulnerable given the deterioration in Syria that we mentioned in the 'Arab summer,' toward more aggressive action and tit-for-tat escalation. it's not hard to see how we get from here to there.'

Source: Eurasia Group

9 - India

10 - South Africa

'Sub-Saharan Africa, more than any other region, epitomizes the paradox of the shift in economic dynamism to the emerging markets and the significant increase in political risk. In aggregate growth terms, Africa looks to be on a trajectory to continue its recent position of positive performance. Middle classes are rising, and more countries are headed on positive growth trajectories. But investor beware, in Africa's two largest and most sophisticated economies--South Africa and Nigeria--the outlook is much less rosy.'

Source: Eurasia Group

Beware The Red Herrings...

What follows are five risks that won't be too significant in 2013.

RED HERRING: Geopolitics of Energy

'Any time you've heard that in the past 30 years, it meant that energy prices were going up. Political risk has been more linked with oil prices than any other market area in the world in the post-war era. But most of the middle east risk in the coming year isn't about energy producers; it's about everywhere else. Syria, Jordan, Lebanon. Israel/Palestine. The Iran risk is there, but lower than the markets think. and while Iraq is becoming a much more serious investment risk, for 2013, most of it doesn't impact oil production.

Add to this the energy revolution coming from the western hemisphere--unprecedented amounts of unconventional gas and oil coming from the united states, as well as exploitation of Canada's oil sands, and offshore Brazil and Mexico also coming on line.'

Source: Eurasia Group

RED HERRING: Global Protectionism

'But maybe the G20 can afford to agree on protectionism because there's less threat here than meets the eye. Over the past five years, there has been a lot more talk about the threat of protectionism than actual protectionist actions.'

Source: Eurasia Group

RED HERRING: Radicalism in the Developed World

'Surely class warfare will trigger significant instability across the developed world?

No. For much the same reason that emerging markets are the top risk this year, it's the underlying stability of advanced industrial democracies that will come through in 2013.'

Source: Eurasia Group

RED HERRING: European Separatism

'There is no doubt that there are very real separatist pressures building in Catalonia and in Scotland, and national unity remains fragile in Belgium. but there is almost no chance that any of these issues grows into an actual crisis leading to separation in 2013.

Catalonia will take the first steps toward holding a referendum, but a vote is unlikely until 2014, and a new fiscal deal with Madrid could even contain the push for self-determination.'

Source: Eurasia Group

RED HERRING: North Korea

'Even when the North Koreans tested an advanced rocket last month--the sort of thing that would have set off all the alarm warnings in previous years--it was a smaller deal given the way they conducted themselves internationally: with less belligerent propaganda, talking in advance with china and Singapore, making clear what was coming and when. Then, offering a public address for the new year, kim said his country was seeking economic development and so he hoped to 'remove confrontations between the north and south.''

Source: Eurasia Group

Those are the risks. Now what's going on in the markets?

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