Some events are true black swans – for example, the September 11th terrorist attacks or the tsunami in Japan – one-off events that create immediate financial panic, but may or may not exacerbate underlying economic vulnerabilities. However, political events that we saw in 2016 – Brexit, the election of Donald Trump in the US and the Italian referendum – are different in that these are manifestations of underlying forces of populism that have been building for years. Populist angst has been rising amid sluggish economic growth and loss of faith in traditional institutions, which have promoted liberal immigration and trade policies, let alone monetary policy that seems to have hit a wall. The resulting political upheaval creates a much wider range of possible outcomes, creating ever more uncertainty for the global economy and financial markets.
As 2017 gets underway, the...
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