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World Bank warns popularist politics will drag on global growth


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World Bank warns popularist politics will drag on global growth

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Populism has a negative impact on the long term economic outlook of Europe and Central Asia but short term growth is expected to accelerate in the region – according to a new report from the World Bank.

It says although new jobs have been created, incomes are stagnating and there is rising inequality.

This increases social fears as reflected by the Brexit vote and reactions to Europe’s refugee crisis. A perfect situation for populism to grow.

Societies can handle one-time shocks but continuing bad economic news contribute to negative expectations, and therefore to a lack of confidence in mainstream parties.

Voters move away from centrist positions and as the report shows, there is even a correlation between under-performing GDP growth and the rise of populism.

For more now on the potential impact of populism in Europe and Central Asia, Euronews’ Doloresz Katanich spoke to the World Bank’s chief economist for the region, Hans Timmer.

DK: With the rise of populism across the world we live in very uncertain times. Your report says this is an economic risk in the long term – why is that?

Hans Timmer, chief economist, World Bank: “The anxiety that is reflected in the voting for more populist parties is rooted in anxiety about the changes in labour markets, the lack of job security. And the risk is going forward, that the problems that these people encounter is not being solved. There are dramatic changes, both because of globalisation and because of new technologies that are very difficult for people to absorb, and societies probably need a new social contract; a new way of dealing with the new labour market.”

DK: If job insecurity is feeding populism, as your report claims, what economic policies should governments be using to tackle this root cause?

HT: “Job insecurity means all the new jobs that are being created are either part-time jobs or they are temporary jobs and the kind of full-time, more permanent jobs are becoming more and more scarce. So, what governments can do is help people to adjust to that new situation. That means social protection systems that in the past were strongly linked to big companies where people would work for a long time now have to be de-linked from those companies and become much more broader and available.”

DK: How are Europe and Central Asia likely to be affected by any protectionist policies rising from this populist trend?

HT: “I think the general experience is that protectionism will reduce growth and will reduce the ability to adjust to new circumstances so that can never be the answer. I think Brexit is a good example. What is happening at the moment is unlikely to solve the problem of the people in the rust belt that lost their jobs, that lost their permanent jobs. I don’t think a solution is in the making. A strategy should be focused on the people that have to get adjusted to new kinds of jobs. You don’t do that by just closing borders.”

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