2019 emerging market elections: The who's who and the so what - AXA Investment Managers
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For professional clients only
February 2019
Research & Strategy Insights
2019 emerging market
elections: The who’s who
and the so what…
Irina Topa-Serry, Shirley Shen,
Senior Economist (Emerging Markets) Economist (Non-China Emerging Asia)
Macro Research – Core Investments Macro Research – Core Investments
As many democratic systems have emerged across example an improvement in GDP per capita in purchasing
developing countries, investors have had to be particularly power parity (PPP) terms. An explanation for this can be
vigilant around political events, such as presidential and found in the 2018 World Inequality Report which suggests,
general elections. In numerous emerging markets (EM), that since 1980, the world’s richest 1% captured twice as
election years have historically coincided with a boost in fiscal much income growth as the bottom 50%. Meanwhile, the
spending, which has often led to a significant deterioration of poorest 50% of individuals have nevertheless enjoyed
what can be already fragile fiscal positions. This in turn has significant growth rates, while income growth has been
led to an increased dependency on foreign financing that, extremely sluggish for the middle classes, which have been
exacerbated by an acceleration of foreign capital outflows, effectively squeezed.
added pressure on currencies and bond yields. Inevitably, a
lot of developing country crises occurred in sync with political Such evolutions may explain the rise of populism around the
cycles. As many emerging markets have seen their world. The political volatility of 2018 was evident in emerging
democratic traditions develop, the financial and political markets, especially in some large Latin American countries,
cycles have decoupled somewhat, thanks to the improved where voters moved decisively away from the political
quality of the fiscal and monetary framework. incumbents. The political agenda will be busy again in 2019,
especially in Asia, with India, Indonesia, Thailand and the
Since 2008, market sensitivity to politics has increased in Philippines holding elections. This year will also see Sub-
advanced economies, as highlighted by events such as the Saharan Africa’s biggest economies, Nigeria and South Africa
European sovereign crisis and the Brexit referendum. But head to the polls. In Eastern Europe, Poland and Romania,
more than a decade on since the global financial crisis, the where relations with the European Union (EU) are tense, will
world economy reached a new cyclical peak in 2018, while also hold important elections. Ukraine, Turkey and Argentina
many financial markets tested uncharted highs. Still, will also go to the ballot box, against a very challenging
according to the Pew Research Centre Global Attitude economic backdrop. Despite the busy calendar and our
Survey, there is widespread economic nostalgia at work anticipations of a broad political continuity for most of these
around the globe, and in many countries people are not elections, populist rhetoric and policies are likely and the
hopeful of a better life for future generations. This is a feeling economic reform momentum may stall.
shared by people in both developed and many developing
economies. Interestingly, perceptions of a more prosperous
past often contrast with the reality of economic data, for
1Nigeria Thailand
Presidential/parliamentary (16 February) General election (24 March)
Exhibit 1: elections 2015 Exhibit 2: 2011 general election and 2019 polls
Parties APC PDP Others Palang Future
Parties Pheu Thai Democrat
Candidate (14) Buhari Jonathan - Pracharat Forward
Vote share 53.9% 44.9% 1.1% Leader Yingluck S. Abhisit V. Uttama S. Thanathorn J
House of Rep. (/360) 188 157 15 Vote share 44.3% 32.3% - -
Senate (/109) 60 48 1 Seats (/500) 265 159 - -
Source: official sources and AXA IM Research Polls 2019 31.8% 17.0% 19.9% 15.6%
Source: official sources, polling agencies and AXA IM Research
APC vs PDP reloaded. Oil-rich Nigeria – Africa’s most populous
country, with some 200mn inhabitants – will go to the polls The return to democracy. Thailand was hit by political crisis
to elect its President and the members of its Parliament (360 for six months following the impeachment of the previous
seats in the House of Representatives and the 109 seats in prime minister (Yingluck). Eventually the Royal Thai Armed
the Senate) by direct popular vote. Those voted in will serve Forces, led by General Prayut Chan-o-cha instigated the
for the next four years. Although Nigeria is structured as a nation’s twelfth coup d'état, which granted itself power,
federation, the central government controls most of the established dominance and put General Prayut in power. In
country’s revenues and resources, thus emphasising the the years that followed, the military junta has repeatedly
importance of the elections. Nigeria’s emerging promised to hold a general election and return democracy to
democracy has a relatively poor election track record. The the nation but has repeatedly failed to do so. There are
forthcoming elections will hopefully be more peaceful, altogether 500 seats available for grabs in the lower house
credible and transparent than the previous ones. While and half of that in the upper house, with the next prime
there are 68 registered parties, the two main ones minister then to be appointed. The current four key
generally receive most of the votes and have been competing parties are the pro-junta Paling Precariat (PPP),
running the country since 1999 when the first elections Democrat (DP), Pheu Thai (PTP) and Future Forward Party
after the 1993 military coup took place: the All (FFP).
Progressives Congress (APC) led by the incumbent
President Muhammadu Buhari, and the People’s If the pro-junta PPP takes control, it will most likely follow
Democratic Party (PDP) which was in power from 1999 to through with the current economic plans and infrastructure
2015, and who will be represented by Atiku Abubakar. projects. However, PTP, home to followers of Thaksin and
Yingluck, is known for its populist policies. With similar
The Nigerian population sees little if any difference between political intentions, DP has promised to meet the needs of
the two main candidates, who have been on the political farmers and low-income earners. Finally, the FFP is a rapidly
scene since the 1980s. Markets may perceive Atiku as more rising new party, that is pledging to end political gridlock,
reform-oriented as he supports a move towards a more remove military power and restore democracy.
flexible exchange rate regime. Neither of the two candidates
has credible policy proposals to tackle the persistent A pro-junta coalition likely. As of now, the election date has
structural issues that continue to limit the country’s growth been delayed again to 24 March to ensure the result
potential: a high poverty rate, weak non-oil revenue announcement does not coincide with the King’s coronation.
generation, weak infrastructure and institutions, massive To secure a peaceful political environment, the winning party
ethnic and religious conflicts. But there is a question over the must take the majority of the lower house and also the
youth vote. Over 60% of the population is below 24 years old premiership. As the pro-junta PPP already has control over
and there is some debate about whether they will look for the upper house (250 seats) it only needs to take 251 in the
counter proposals to the PDP/APC framework? Options exist lower house, while the anti-junta need to control at least 376
for younger candidates, for example M. Moghalu, former members. However, the junta would only need 126 in the
deputy governor of Nigeria's central bank, who lower house to select the prime minister. But under this
represents the Young Progressives Party. scenario, an anti-junta coalition would control the lower
house, and more political unrest may follow. We believe that
At the mercy of oil prices swings. Nigeria is both Africa’s a coalition of pro-junta parties will most likely be formed and
largest economy and its largest oil exporter. The economy is that a pro-junta prime minister will be appointed. Therefore,
gradually recovering from its 2016 recession, which was we expect few political risks for Thailand throughout 2019. In
driven by low oil prices and production, and exacerbated by addition, our economic outlook points to a gradual slowdown
militant attacks on infrastructure in the Niger Delta, as well as of real growth with the domestic environment serving as the
self-imposed FX restrictions. The recent weakness in oil prices main growth engine.
as well as OPEC’s imposed output cuts may limit the expected
rebound.
2Ukraine Turkey
Presidential (March/April), general elections (October) Local elections (31 March)
Exhibit 3: 2014 election result and 2019 polls Exhibit 4: 2014 local election result
Independent Al lUkr Union Radical Civil Parties AKP CHP MHP BDP/HDP
Parties
UDAR “Fatherland” Party Position Leader Erdogan Kilicdaroglu Bahçeli Buldan/Temelli
Leader Poroshenko Tymoshenko Lyashko Hrytsenko Vote share 42.9% 26.3% 17.8% 6.3%
Vote share 54.7% 12.8% 8.3% 5.5% Councillors 11,309 4,320 3,675 1,570
2019 Polls 10-15% 20% ~9% ~10% Mayors 818 232 169 99
Seats (/450) 138 79 22 - Source: official sources and AXA IM Research
Source: official sources, polling agencies and AXA IM Research
AKP seeking control of municipalities. Every five years, Turkish
Uncertain election outcome. This year, Ukraine will elect its local elections take place in its 81 provinces – more than
President for a five-year term. The first round of elections is 20,000 positions are contested for metropolitan and
set for 31 March, with a second scheduled for 21 April, municipal mayors, provincial and municipal councilors,
should it be needed, which at this stage looks likely. In neighborhood presidents and elderly people councils. After
October the Ukrainian Parliament (the Rada) will also be these elections, there will be no national elections in Turkey
renewed. As the country’s sole legislative body, Parliament until 2023. President Recep Tayyip Erdogan and his AKP
drives the Ukraine’s domestic and foreign policies, and ruling party won the last Presidential and Parliamentary
appoints its Prime Minister according to the majority elections again, while the 2017 Constitutional referendum
coalition formed after the election. As such, the relationship gives the President expanded executive powers. As such,
between the President and the Prime Minister is key to these local elections bear little importance, though they will
effective policy implementation. Both elections appear highly be a gauge of Erdogan’s popularity.
uncertain given that polls show a quarter of voters being
either undecided or unwilling to vote. Moreover, the large Testing Erdogan’s popularity. These elections happen to take
number of candidates for the Presidential race limits its place at a rather uncomfortable moment given the economic
visibility. So far, opposition leader and former Prime Minister, turbulence the country has endured since the middle of last
Yulia Tymoshenko leads the polls with around 20% support, year and a likely recession in 2019. There are some polls
ahead of current President Poroshenko (who markets which suggest quite a tight race in Ankara and Istanbul.
perceive to be pro-reformist) who currently has the support Opposition parties are nevertheless not in great shape and
of around 10% to 15% of voters, according to recent polls, even in the case of a poor result for the AKP in these local
followed by the very popular Ukrainian comedian Zeleskiy elections, it is difficult to imagine that it could have real
(around 13%), who has positioned himself as an anti- effects on the Turkish political landscape.
establishment candidate.
Between a rock and a hard place. The overheated Turkish
Potential implications on the IMF arrangement? The high economy, buoyed by a large pre-election fiscal boost in 2017,
rejection rate of the President, makes a potential win for Ms came to a standstill last year. Growing structural imbalances
Tymoshenko in a run-off possible. Conversely, were she to and political tensions with the US translated into a substantial
face Mr Zeleskiy, the race would be a lot closer. Importantly, depreciation of the currency, widening credit spreads and
her campaign promises (gas tariffs reform) pose a serious asset price losses. The central bank hiked interest rates by 16
threat to the continuity of the International Monetary Fund percentage points to 24% to restore some confidence, to
(IMF) agreement which allowed the country to access anchor inflation expectations and stabilise the currency. Still,
additional and much-needed international financing. Sizeable Turkey is inevitably heading into recession and adjustments
financing needs over the next two years underline the critical can be rather brutal. The current account deficit has falled
need to maintain reform momentum and with it the IMF quickly on the back of contracting domestic demand,
deal, for any elected President. shrinking industrial production and slumping retail sales. As a
result of the rapid change, the margin for error when it
Weaker growth, elevated uncertainty. Inflation has remained comes to forecasting is wide, especially given that monetary
above the central bank’s target range leading to interest rate and fiscal policy reactions to any further financial markets
hikes since September 2017 (a 550bps increase to 18% for pressure could be significant. We have pencilled in GDP
key policy rates), while the global tightening of financial growth at 0.5% for next year after 3.5% in 2018. Turkey is
conditions pressured the currency. Consumer spending walking a tightrope and policy decisions will need to provide
growth should soften as disposable income remains the right balance between credibly anchoring market
contained while election uncertainties will most likely weigh expectations – striving to limit the downward pressure on the
on investment plans. All in all, growth should decelerate this economy. In this context, these upcoming municipal elections
year the World Bank expects GDP growth of 2.9% in 2019 are likely to prove more difficult for President Erdogan than
after 3.5% in 2018 (Global Economic Prospects, Jan.2019). initially thought.
3Israel Indonesia
Election of the Knesset (9 April) Presidential and parliamentary election (17 April)
Exhibit 5: 2015 election result Exhibit 6: 2014 election results and 2019 polls
Parties Likud Zionists Joint List Yesh Atid Parties PDI-P Gerindra
Leader Netanyahu Livni Odeh Lapid Joko Widodo
Leader Prabowo Subianto
Vote share 23.4% 18.7% 10.6% 8.8% (Jokowi)
Seats (/120) 30 24 13 11 Vote share 53.15% 46.85%
Source official sources and AXA IM Research Seats (/575) 353 207
Polls 2019 61.3% 36.4%
A history of fractious coalitions. The 120 seats in the Israeli
Vice president Sandiaga Salahuddin
unicameral national legislature body, the Knesset, are elected Ma’ruf Amin
candidate Uno
by proportional representation (closed party lists). The
Source: official sources, polling agencies and AXA IM Research
Knesset passes laws, elects the President and the Prime
Minister and approves the PM’s cabinet. The abnormally high Jokowi vs. Prabowo. For the first time in history, Indonesia
number of political parties make governing coalitions will cast votes in both the presidential and parliamentary
fractious. Except of a period of several months, there has elections simultaneously. While everyone is closely
never been a single group coalition that had a majority in the monitoring the former, the latter is also important as it will
history of the Knesset. In time, traditional dominant parties, influence the ability for the next president to successfully
the Likud and the Labour Party, have seen their joint number pass key legislation. Similar to 2014, the two candidates are
of seats in the Knesset drop considerably, from 95 in 1981, to PDI-P’s Joko Widodo, current president and Gerindra’s
54 now. This means that the winning party has to join forces Prabowo Subianto. However, what’s different this time is
with many small, single-issue parties to form marginal President Jokowi’s will face Prabowo with a broader coalition
coalitions, which historically have easily fallen apart due to a (six parties vs. four parties, see Exhibit 7)
divergence of objectives – in all there have been 34
governments in Israel’s 71 year history. For the past year, the policy stance between Jokowi and
Prabowo has narrowed. Both candidates have vowed to
A likely win for the right Likud. Polls show the senior partner better the lives of Indonesians, reduce inequality and as the
in the government coalition, the Likud, as well as its home to hundreds of ethnicities, they understand the need
opponent, the Labour-led Zionist Union, receiving less public to maintain an environment of religious freedom. Ongoing
support, which spreads in the favour of small existing or infrastructure projects will most likely continue, regardless of
emerging parties. Yet, the Likud appears to still have a solid who wins the seat. Given the global political uncertainties
lead over its rivals and therefore looks likely to win, unless throughout 2019, policy makers will pursue stability at all
several opposition parties join forces to form a centre-left costs.
bloc that could challenge PM Netanyahu. This latter one may
come again under pressure over several corruption Jokowi most likely re-elected. Historically, Indonesian markets
investigations, though the timing of any fallout is still unclear. have been rather resilient during election period and upon
The current coalition is markedly right-wing. As a result, this the announcement of election outcomes. With the current
government showed very hawkish positions on foreign policy strong lead, the case for another five-year term for the
and relations with the Palestinian population and a pro- incumbent President Jokowi is high. We currently believe the
market attitude in economic policy. This being said, political market has already priced in a Jokowi win, however, if this
instability has not undermined the resilience of the economy does not occur, markets may turn sour. On the macro front, a
in the past. persistent current account deficit continues to be a concern
for Indonesia, and as policy shifts to reduce investment
Resilient economic performance. Israel’s economic dynamism spending, the capex cycle is expected to ease further into
stems from its high-tech export sector supported by its 2019.
highly-educated labour force and substantial public and
private investment in R&D. Israel benefited as well from a Exhibit 7: 2019 vs. 2014 party coalition
rapid expansion of its labour force, on the back of an influx of Party by coalition 2019 support 2014 support Governing coalition
immigrants, boosting economic growth. Annual GDP growth PDI-P
PKB
slowed nevertheless since 2012 to below -4% as working-age Jokowi
NadDem
Jokowi
population growth and world-trade slowed, and should Hanura Jokowi
Golkar
continue to stay on this trend in 2018 (+3.6%) and 2019 PPP
(+3.5%). Inflation has picked up somewhat in 2018 (+0.8%) PAN
Prabowo
but the recent fall in energy prices limits 2019 inflation Gerindra
Prabowo Opposition
PKS
expectations (1%). The normalisation of the monetary policy DP Neutral
(base rate at 0.25%) should be gradual and rather slow. Source: AXA IM R&IS calculations
4India Philippines
India national election (May) Midterm election (13 May)
Exhibit 8: 2014 general election Exhibit 9: 2016 presidential election results
Parties BJP INC AIADMK Parties PDP-Laban Liberal Independent
Alliance NDA UPA Leader Rodrigo Duerte Mar Roxas Grace Poe
Leader Narendra Modi Rahul Gandhi Jayalalithaa Vote share 39.0% 23.5% 21.4%
Vote share 31.3% 19.5% 3.3% Vice Leni Bongbong
-
Seats (/545) 282 44 37 president Robredo Marcos
Source: official sources and AXA IM Research Vote share - 35.1% 34.5%
Source: official sources and AXA IM Research
Modi vs. Gandhi. India is expected to hold its general election
around May this year to constitute the 17th Lok Sabha – the Mid-term elections, a bellweather for President Duerte. As a
lower house of India’s parliament. The two key parties are referendum on the serving President Rodrigo Duterte’s
the Bharatiya Janata Party (BJP) and the Indian National policies, the May mid-term election outcome may influence
Congress (INC), historically both played a great importance in the incumbent administration’s agenda, such as infrastructure,
national politics. In addition, BJP and INC are leading the two tax reform and federalism, among other factors. This election
largest alliances – National Democratic Alliance (NDA) and allows the following to be contested: 12 out of 24 seats in the
United Progressive Alliance (UPA). And as current polls Senate, the whole of the House of Representatives and all
indicate, Narendra Modi and Rahul Gandhi remain as the two local office positions. Again, the top two contending parties –
major contenders for the 2019 election. Duterte-led Partido Demokratiko Pilipino-Lakas ng Bayan
(PDP-Laban) and the opposition Liberal Party, will be
Anti-Modi mood rising. Many opinion polls have suggested competing for the majority of the empty positions.
that anti-Modi sentiment has been rising, especially evident
as India has recently experienced the largest two day strike in There are many empty fields open for contest, out of which,
its history. This anti-Modi mood was largely based on his the Senatorial election is the most important one. The 12
failure to accelerate growth and create jobs. Even worse, his positions in the Senate will be given to the top 12 candidates
failed reforms such as agricultural distress, institutional with most votes (Refer to Exhibit 10 for the top 12 candidates
erosion and especially demonetisationhave scraped at least as of September 2018). According to the table, eight out of
three percentage points off India’s economic activity in 2016, 12 popular candidates belong to the incumbent-led coalition.
according to NBER digest’s 2019 issue. In fact, this anti-Modi
attitude developed in late 2018. On top of the December Political continuity most likely. With strong public support, we
farmers’ strike, the state election results suggested gains for expect political continuity, as the chances of the incumbent-
the Congress and dimishing supports for Modi. led coalition retaining the majority in the Senate remains
high. Therefore, the “build, build, build” program will stay on
Historically, the state election outcomes have not been an path, leading to stronger fiscal impulse and further widening
good bellwether for the national election results. Even of current account deficit. Growth is expected to moderate
though support for Modi has been falling, opinion polls still throughout 2019 on the back of slowing external demand,
suggest the market is pricing in an incumbent win. We expect though government consumption will serve as a main growth
Modi to have a 50% chance of returning to power, with the support going forward.
other 50% corresponding to a Gandhi win or BJP supporting a
new party leader (such as Nitin Gadkari, currently the Exhibit 10: Top 12 candidates so far (September 2018)
minister of transport). Rank Candidate Party Vote share (%)
1 Cynthia Villar Nacionalista 53
Policy continuity and growth acceleration. In the end, 2 Grace Poe Independent 43
regardless of who takes office, policy continuity is expected. 3 Pia Cayetano Nacionalista 43
That said, a win for Modi could result in some headwinds as 4 Koko Pimentel PDP-Laban 33
political dynamics have changed at state levels. In general, 5 Lito Lapid Independent 33
the government will continue to accelerate growth measures 6 Jinggoy Estrada UNA 31
(2019 GDP growth forecast to accelerate to 7.4% from 2018’s 7 Mar Roxas Liberal 30
8 Nancy Binay UNA 26
7.3%) and covert to poverty reduction. However, if India’s
9 Sonny Angara PDP 26
farmers continue to suffer and jobs are not created, more
10 Ronald dela Rosa PDP-Laban 25
political disorder may follow.
11 Sergio Osmena III Independent 24
12 Imee Marcos Nacionalista 24
Note: Red = Duerte-led Coalition
Source: Social Weather Stations and AXA IM Research
5South Africa Argentina
General Elections (May) General elections (October/November)
Exhibit 11: 2014 elections results and 2019 polls Exhibit 12: 2015 general election result and 2019 polls
Parties ANC DA EFF Cambiemos FV UNA
Leader Ramaphosa Maimane Malema Leader Macri Fernandez
Vote share 62.1% 22.2% 6.4% Contenders Macri Scioli Massa
Seats (/400) 249 89 25 Vote share 51.4% 48.6%
Polls 2019 56% 18% 11% Deputies (/257) 108 65 20
Source: official sources, polling agencies and AXA IM Research Senators (/72) 25 9 3
Source: official sources and AXA IM Research
ANC leading but support is diminishing: General elections take
place every five years aiming at allocating the 400 seats of Marci versus various Peronists: Every two years, Argentinians
the National Assembly using proportional representation mandatorily go to polls and elect national congress members,
(voters effectively elect political parties which decided their whose terms expire. In 2019, half of the deputies (130/257
candidate lists). The National Assembly elects the President. seats, serving four-year terms) and a third of the senators
The political landscape in South Africa is dominated by the (24/72 seats, serving six-year terms) will be elected using
African National Congress (ANC) in power since the end of proportional representation. This year, the President will be
apartheid in 1994, whose leader, President Cyril Ramaphosa also elected following most likely a second round (if he/she
will seek his first full term in office (he replaced President fails to secure 45% of the votes in the first or 40% of the
Jacob Zuma upon his resignation a year ago). The centre-right votes albeit 10ppt ahead of the second-best candidate.
Democratic Alliance (DA) and leftist Economic Freedom Current President Macri represents Cambiemos centre-right
Fighters (EFF) are the two main opposition parties (among coalition. The two main opposition parties are the Judicialist
285 registered national parties), both dealing as well with Party (JP) and its faction Front of Victory (FV) led by Senator
serious setbacks. The Socialist Revolutionary Workers Party Cristina Fernandez de Kirchner, who already served twice as
(SRWP) initiated by the well-organised National Union of President, as part of the broader Peronist movement.
Metal Workers (NUMSA) is a new player to be considered.
Polls continue to show the ANC in the lead but public support Macri vs. Kirshner, under the IMF bailout: The most likely
has decreased as a result of corruption scandals and poor scenario appears to be a tight race to a very likely run-off
governance under former President Zuma. between the current President Macri and Senator Fernandez
Kirchner, were they to run for elections. At this early stage,
Strong majority needed to pursue reforms: The ANC may need polls suggest that Macri could be re-elected despite the
to secure at least 60% of the votes to have the support economic crisis that emerged last year, which significantly
needed to pursue the significant reforms required to tackle dented the President’s popularity, given the extremely
the country’s structural issues – high levels of inequality, unpopular comeback of yet another IMF bailout – and
widespread poverty, rigid labour market, skills shortages, despite the fact that Fernandez de Kirchner positions herself
infrastructure deficit and large twin deficits. It may well need as an anti-IMF candidate. Since becoming a member of the
EFF’s additional support in the form of a coalition. At any IMF in 1956, Argentina has requested 18 stand-by
rate, in attempting to solve the ANC’s serious internal agreements, three conditional loan packages and eight non-
divisions or to seal alliances with opposition parties, restrictive funding. Between between 1956 and 2006 – the
President Ramaphosa should hopefully remain committed to last IMF deal before the 2018 one – for 39 years out of 50,
state integrity through tackling corruption. Argentina lived under an agreement of some sort with the
IMF, which has left painful memories of austerity measures
South Africa economic environment has been particularly and repeated crises.
difficult in 2018. The economy was in recession in the first
half of 2018, at the time when the EM sell-off started The recession ignited in 2018 should bottom out early-2019.
pressuring the rand and thus monetary policy’s ability to act For sure 2018 will mark yet another recession in Argentina,
counter-cyclically. Meanwhile, the newly elected ANC very much unexpected. Authorities were estimating inflation
President Ramaphosa failed to deliver on (high) reform at 15%, growth above 3%, the currency at 19 vs dollar.
expectations given insufficient party unity. All in all, GDP Instead inflation spiked beyond 45%, the peso lost half of its
growth should average 0.5% in 2018 and should remain pretty value and GDP growth may contract by 2.8% in 2018 and by
subdued in 2019, albeit accelerating to 1.5%. Consumption, 1.7% in 2019. Yet, the trough should be not that far away as
which accounts for 60% of GDP, is expected to remain adjustments take place rapidly with current account moving
resilient, while any positive reform momentum could support into surplus. The IMF financing imposes fiscal efforts in order
some investment revival. Dates to watch: 2019/2020 draft to eliminate the primary deficit. In all, a particularly difficult
budget (Feb), Moody’s review (Nov). economic environment for the upcoming elections.
6Poland Romania
Parliamentary elections (by November) Presidential election (by December)
Exhibit 13: 2015 parliamentary election result Exhibit 14: 2014 presidential election result
Parties PiS PO K15 .Modern PNL- PSD- PMP-
Parties Independent
Sejm (/460) 235 138 42 28 PDL UNPR-PC PNTCD
Senate (/100) 61 34 - - Klaus Victor Popescu- Elena
Candidate
Source: official sources and AXA IM Research Ihannis Ponta Tariceanu Udrea
Vote share
Will the Law and Justice (PiS) maintain its outright majority in 30.4 40.4 5.4 5.2
-1st round (%)
the next Polish Parliament? The Polish Parliament will seek
-run-off (%) 54.4 45.6 - -
renewal of its 460 seats in the lower house (Sejm, elected by
Source: official sources and AXA IM Research
open party-list proportional representation in constituencies)
and 100 seats in the Senate (elected using first-past-the-post President Klaus Iohannis seeks re-election. Romanian
vote in single districts). The national-conservative Law and Presidential elections will take place into the year-end. At this
Justice (PiS) secured an absolute majority in the last set of stage, there is a single declared candidate, namely the
elections (37.5% of votes), a first in the post-communist incumbent President supported by the Liberal Party (PNL).
history of the country. The liberal-conservative Civic Platform Yet, he will face multiple contenders starting with the ruling
(PO) is the second largest party in the Parliament followed by coalition which may still decide whether it presents a single
the anti-establishment Kukiz’15 (K15) political movement led candidate or chooses to run with a candidate from each
by Polish punk rock musician Kukiz and the .Modern, liberal party, i.e. the Social Democrats (PSD) led by Dragnet and the
party recently founded by a former World Bank economist. Alliance of Liberals and Democrats (ALDE) led by Călin
The Polish political spectrum appears polarised to the right, Popescu-Tariceanu. Other contenders may come from the
with the PiS/PO duopoly fighting for power. Polls continue to former PSD PM, Victor Ponta, defeated by Iohannis in the
suggest a clear lead for PiS, which will be likely re-elected. run-off in 2014, who launched Pro-Romania party. The Save
The question is more whether the PiS will manage to Romania Union (USR) led by Dan Barna and the recently
maintain its absolute majority in the Parliament. launched Freedom Unity and Solidarity Party (PLUS) under
the helm of former technocrat government PM Dacian Ciolos
A PiS majority suggests ongoing tensions with the European formed a union ahead of elections.
Union. Since taking office in 2015, the Law and Justice
government has put Poland on a collision course with the EU The interesting case of Liviu Dragnea (PSD). Dragnea has been
over controversial judicial reforms which were perceived as effectively running the government in the past years given
possibly undermining the independence of the courts. The the landslide PSD victory cast in 2016 legislative elections. He
European Commission launched an infringement procedure could not act as PM being convicted of abuse of power.
against Poland over this new law and under the European Attempts to decriminalise corruption-related offences
Court of Justice pressure, the PiS had to back down very triggered street protests that continued to date more or less
recently, treading a fine line between its domestic agenda peacefully. More recently, the European Commission accused
and the need to remain broadly compliant with EU him of corruption involving European Union funds to which
regulations. Frictions with the EU are likely to continue under he replied by a lawsuit against the EC at the European Court
the PiS. Ahead of the EU parliament elections, Italy's Interior of Justice. The few early opinion polls show a weakening
Minister Matteo Salvini travelled to Poland in search of support for the PSD, and an even sharper drop of support for
Eurosceptic partners for what he calls a “European spring” Dragnea, were he to run for elections.
alliance, a “new plan for Europe”, to replace the centre-right
influence of France and Germany. Romania holds the EU Council presidency. The power struggle
between the government and the judiciary triggered rule of
EU Parliament elections scheduled in May this year will be an law criticism from the EU Parliament. Additionally, end-2018,
important gauge of the growing euro-sceptic sentiment in the PSD government imposed a wide range of “greed taxes”
Poland. The upcoming negotiations of the 2021-2027 EU which rattled financial markets and the currency. Romania
budget will be another important event to follow as the holds the EU Council Presidency through the first half of
tensions with the EU on the rule of law front may end up in 2019, a most likely defining year for the European project
sanctions which can translate into cuts in the EU budget with the Brexit and the Parliament elections in sight. The EU
directed to Poland. Poland is the largest beneficiary of the Council officials will meet in May in Sibiu (Romania), and this
European Structural and Investment Funds (ESIF), entitled to could be the first meeting after the UK’s departure from the
receive up to €86bn for the 2014-2020 period (i.e. 2.7% of EU and the last one ahead of EU Parliament elections. Will
GDP annually, or more than half of expected national public the government be able to favour long-term national benefits
investment). by building trust through an exemplary behaviour over short-
term party gains?
7For professional clients only
February 2019
Research & Strategy Insights
Our Research is available on line: http://www.axa-im.com/en/insights
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