Laza Kekić, Regional Director for Europe and Director of Country Forecasting Services at The Economist Intelligence Unit: Gap between economic splendour and political instability

Laza Kekic gives us a fresh perspective from his expert viewpoint and talks about geopolitical risks in 2018 from London.

This year will be loaded with several political risks. Since I live in the UK, we are mostly preoccupied with Brexit and the tension between the United Kingdom and European Union. I have been advocating Brexit since the very beginning and when the editor-in-chief of The Economist, Daniel Franklin asked us, on the very day of voting, who was in favour of Brexit, I was the only one who lifted their hand. I still think that Brexit is a good opportunity for the United Kingdom.

Almost all risks that I was talking about last year in my presentation “Years of Living Dangerously” are still there (Brexit, political crisis and populism in Europe, migration crisis, terrorism, instability in Turkey, relations between the West and Russia, and threats in the Balkans). Additionally, there are new threats emerging in 2018 like possible armed conflicts in Asia and Spain falling apart. In many respects, the geopolitical risks in 2018 are going to be graver than those in the past. I am referring to the arms race between Russia and the West, the attempts in the US to bring Trump down, election in Italy, possible election in Germany, the contentious relations between Great Britain and the EU, and the consequences of the Islamic State’s defeat in Iraq and Syria.

There is also an interesting gap between positive economic trends and unstable policy. The United States has almost full employment. There is also a 2.2% GDP growth, the recovery of Eurozone and a 2.3% growth. China is now stable and the recession in Russia and Brazil has ceased. How long can this be sustained? Terrorism and new conflicts in the Middle East are major risks, while the risks of conflicts in East Asia and the collapse of the Brexit negotiations pose somewhat lesser risks. It is important for us to know that the chances of conflicts in the Balkans happening again are small, as are the chances of the conflict between Russia and the West. Spain will probably survive. There is a crisis of democracy in the West since there is a low political participation and a weak faith in politicians. Parties of centre are losing support, and objective media are losing on their power.

In the first nine months of 2017, foreign direct investments (FDI) in Serbia were higher than in all other Balkan economies put together, as they amounted to 2.4 billion US. However, what is worrying is that the effects of important FDIs in Serbia are fairly modest given the low GDP growth. Geopolitical risks are the biggest obstacle to development. FDIs would be much higher if the risk is lower. Serbia has the traditional Titoist policy of taking the middle road and swimming between the EU and Russia. Once Serbia is on the threshold of joining the EU, the question of the country renouncing its allegiance to Russia will be raised, but only if the EU survives, which is also uncertain.

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