December 2, 2017

Political Risk Will Hang Heavily Over Corporate Investment Decisions in 2018

Each year The Economist Intelligence Unit (The EIU) issues a report forecasting how six industry sectors (automotive, consumer goods and retail, energy, financial services, healthcare, and telecoms) will develop globally over the coming year. Industries in 2018 highlights how traditional business models are likely to come under strain amid sweeping changes, many driven by technology. It also highlights how, despite continued global economic growth, companies will need to remain flexible and be wary of political risks, particularly in the European Union (EU).

The EIU report begins by asserting: "Traditional business models will come under strain amid sweeping changes, many driven by technology. Despite the decent economic conditions, political risk will hang heavily over investment decisions."

Furthermore, "This year's report, which gives our forecasts for 2018, highlights how old ways of making money are fast going out of fashion. Perhaps the starkest example of this is in retailing, where online selling is dramatically disrupting the traditional shopping culture. That industry is not alone. Telecoms companies are facing new challenges from technology players, heightening already fierce competition, while established players in carmaking and energy are struggling to adapt to the rise of clean technologies. Pharmaceutical companies face pricing and patenting dilemmas, while regulators are redoubling pressure on financial services companies."

From a business strategist perspective, I support the report's assertion that "companies will need to shake up their business models in 2018 to respond to these pressures. However, planning is easier than execution. New regulations, new competitors and new consumer demands will emerge during the year ahead in many markets, while the business environment will develop in ways that may be hard to predict."

What is more, according to The EIU, "High levels of political risk will also complicate matters in each of our six industries: automotive; consumer goods and retail; energy; financial services; healthcare; and telecoms. At least global economic conditions will not be bad—although not quite as good as in 2017."

Lastly, the report importantly notes:
Although White House policies continue to concern many companies in our six industries, the threat of a damaging trade war has receded since our 2017 report as geopolitical and business realities win out. Even so, global trade growth will decline from 4.6% in 2017 to 3.5% in 2018, mainly owing to a slowdown in China's economy. Political risks will remain strong, particularly in the EU: as Brexit edges nearer, the risk that the negotiations will break down remains high. In 2018 companies will need to remain flexible enough to deal with such risks, while also seizing the opportunities presented by continued global growth.
Do you agree that political risk will hang heavily over corporate investment decisions in 2018?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

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