Geopolitical and economic uncertainty will continue to affect businesses across the Asia Pacific region in the coming year as markets adjust to the new post-pandemic environment. Based on a recent regional panel discussion involving KPMG leaders from across Asia Pacific, there are currently four key geopolitical drivers affecting the business environment globally and across the region.
The first key geopolitical driver is structural. As emerging and developing economies grow and become more influential, their interests and perspectives are challenging the status quo in the international system. This creates competition, mistrust, and uncertainty in the international system. To maintain or increase power and influence, many countries are using economic tools for geopolitical purposes, and there is a rise of geopolitical rather than economic logic in policymaking.
The second driver is socio-political. The past few years have brought an extraordinary decline in levels of trust in traditional institutions around the world. People are becoming sceptical of those in power, who they see as untrustworthy, and they are shifting their political loyalties away from the centre and towards the extremes. This creates fertile ground for populist and authoritarian leaders, increasing tendencies towards nationalism and protectionism, and pressure on domestic and international institutions that provide stability and predictability for business.
The third macro geopolitical trend at play is technological. A massive global competition is underway for technological supremacy. The two big heavyweights in this contest – the US and China – continue to take center stage, and other countries are being increasingly drawn into what some describe as a ‘tech cold war’.
The fourth driver is climate change. We know it brings extreme weather events and disrupts supply chains. Yet the path to mitigate many of the risks are starting to become heavily politicized in the name of national and energy security. Markets are now vying to become renewable energy superpowers. There is more competition for shared resources. The potential for millions of climate refugees to disrupt foreign markets is significant and growing.
“Asia Pacific markets and businesses have been incredibly resilient through the disruptions of the past few years and, broadly speaking, they continue to show signs of above average growth compared to markets in other regions,” says Patrick Cowley, KPMG’s Global Head of Restructuring and moderator of the recent Asia Pacific round table. “Yet we are heading into a very uncertain geopolitical and geoeconomic environment and some sectors and companies will likely find themselves in distressed situations. It is more important than ever for business leaders to understand the key trends at play today.”