After a political standoff threatened to shut down the US government last week, politics is top of mind for many business leaders, with CEOs recently surveyed by KPMG identifying geopolitics and political uncertainty as the biggest risk to business growth over the next three years.
CEOs’ concerns about political instability come as the US government narrowly averted a shutdown and the US House of Representatives voted to oust Speaker Kevin McCarthy, highlighting deep divisions in the federal government that could negatively impact the country’s budget, credit rating and financial markets.
Geopolitics and political uncertainty haven’t always been CEO worries. In fact, according to KPMG, they didn’t even make it into the top five CEO concerns in 2022, suggesting that there has been a significant shift in how executives view political risk.
More than three-quarters (77%) of CEOs also said they believe rising interest rates and restrictive monetary policy could contribute to the risk of a global recession, as the Federal Reserve raises interest rates to combat inflation. Fed officials have indicated that interest rates could remain higher for longer if inflation persists.
Recent political standoffs have also caused more investors to become politically stressed, with just over half of investors surveyed by Investopedia (52%) saying they are concerned that politics and the 2024 presidential election will affect their portfolio’s performance over the next 12 months. Concerns about the election were second only to worries about inflation, with 59% of respondents saying they’re worried it will affect their investments.
However, in most presidential election years, the S&P 500 delivers positive returns, Morgan Stanley found. The analysts noted that when a Democrat was in office and a new Democrat was elected, the index gained an average of 11%, while when a Republican replaced a Democrat, it returned an average of 12.9%.
Despite concerns about political uncertainty, CEOs were slightly more optimistic about global economic prospects over the next three years than in previous surveys. In September, 73% of CEOs said they were confident about global economic growth prospects over the next three years, compared with 71% in August 2022 and only 60% in August 2021.
