Political risk is a global threat to recovery

IN a tentative recovery, everyone always looks for the next nasty shock that could spring up and derail growth. The answer this time is political risk – all over the world. We all know about the geo-political tensions in the Middle East that sent Brent over $126 earlier this month. But in a year heavy with elections and unpopular austerity, governments have much work to do.

In Europe, several governments have fallen since the crisis started and their replacements aren’t having an easy ride of it either.

Portugal’s prime minister Pedro Passos Coelho won power nine months ago in the midst of the crisis, after the previous leader called in the bailout and subsequently stood down.

But a clash between Coelho’s government and the largest union over job reforms prompted the country’s second general strike last week. That as markets speculate Portugal will need a second bailout and a debt restructuring.

In Italy, where the government fell, to be replaced by technocratic leader Mario Monti, unions are also railing against labour market reform. In Spain, another new mid-crisis leader, Mariano Rajoy, has endured a test of his commitment to austerity in this weekend’s regional elections in Andalusia.

Here in the UK, we’re facing a different political balancing act.

Battling to save the UK’s AAA credit rating, last week’s budget was complicated by the fact George Osborne had to balance not only growth and austerity, but Liberal Democrat and Conservative sensibilities.

Although the general public brought the whole budget down to the issue of the “granny tax,” I’m endlessly impressed that the coalition is managing to reach compromises and keep the government together while battling with outside pressures.

But it’s not only governments that have to worry about politics. On Thursday last week shares of Randgold Resources plunged 14 percent in one day after a military coup in Mali spooked investors.

There’s still plenty more to come. The Russian election concluded as expected, but now we need to watch returning president Vladimir Putin’s response to increasing pressure on him to condemn the Syrian crackdown. Plus there are upcoming elections in the US and France and a shift in leadership in China.

There are countless economic issues at play in the recovery story, but political risk is only going to become ever more important as this year continues.

Beccy Meehan is an anchor at CNBC. Follow her on Twitter @BeccyMeehan.