“Global recession of freedom": Political stock markets get long legs

Western democracies are at the beginning of a “super cycle of uncertainty” in which political, economic and social instability is on the rise. This threatens the transition to an authoritarian era that seriously jeopardizes the foundations of liberal democracy. This is the conclusion reached by the FERI Cognitive Finance Institute in a study on the “Global Recession of Freedom”: “In many Western countries, the political center is disintegrating and radical fringes are being strengthened - this is destroying the basic fabric of Western democracies,” says Dr. Heinz-Werner Rapp, founder and director of the FERI Cognitive Finance Institute. This trend is clearly confirmed by the outcome of the 2024 European elections, the recent elections in East Germany and the presumed outcome of the presidential elections in the USA. In addition, there is a global trend towards autocracy: “Russia and China in particular are actively leading this movement and forming a veritable front against freedom. This also increases long-term risk drivers for the economy and capital markets,” says Rapp, explaining the key findings of the study.  

Growing longing for autocracy 

In many Western countries - particularly in the USA - enormous dissatisfaction has been building up for years, accompanied by massive criticism of established politics. This structural loss of trust is leading to frustration and a growing rejection of the democratic system, which largely explains the current shift to the right in Western societies. The principle of democratic freedom is increasingly being replaced by the desire for simple solutions: “Many people are developing - consciously or unconsciously - a growing longing for autocracy, but are overlooking the negative consequences for freedom and civil rights,” explains Rapp. 

Europe under increasing pressure 

The situation is becoming more critical for Europe in particular: on the one hand, because anti-democratic forces in important EU countries (most recently also in Germany) are significantly increasing pressure from within.  On the other hand, because pressure from outside is also increasing massively - led by dictatorships such as China and Russia, which are increasingly challenging the global order in conjunction with other countries. “And if Donald Trump wins the US elections in November, the global recession of freedom will worsen. Because Trump is openly planning to turn the USA into a kind of presidential dictatorship,” warns Rapp.   

Political upheaval with concrete consequences 

“The tectonic transformation of political systems - away from democracy and towards autocracy - also has noticeable consequences for the economy and financial markets,” emphasizes Rapp. Populist or autocratic systems not only have a poorer economic performance, but usually also massively curtail the freedoms of their citizens. “That's why the widespread statement that political stock markets have short legs is completely wrong here. On the contrary, the ongoing global recession of freedom has a concrete impact on capital flows, assets and property rights,” warns Rapp. Asset owners, entrepreneurs and investors should be aware of these risks and give greater priority to protecting personal and financial freedom of disposition in the coming years.

The German study “Globale Rezession der Freiheit: Die Selbstaufgabe der Demokratie und ihre gefährlichen Folgen” deepens and supplements the findings of previous analyses on the risks of autocratic tendencies and populist politics. A short version of the study is available (in German) for download on this page.