PRS Geopolitics: Client Meetings in Firenze, Trump Tariffs, and New Scholarly Findings Using the ICRG Data

One of the more pleasant aspects of running PRS is meeting our clients in various locales.  Because our patrons are global, some international travel is required.  But it is not the kind of business travel that is crammed with back-to-back meetings and agendas, peppered with deadlines to meet back at the home office, competing against time zones.  To be sure, PRS does run fast, and the team we’ve assembled over the years is superb and seasoned professionals.  But given the kind of work we perform, the attention to detail, thoroughness, and nuances about a country’s risk profile, a less hurried approach is the norm.

In mid-April I was in Firenze once again, meeting with several of PRS’ clients and with those for whom we perform advisory services. The weather was superb – spring in the northern hemisphere is especially enjoyable to me – and the city was operating at its usual best.  I did manage to meet with some friends and the usual tour of the Uffizi was in order as we caught up.

During the meetings much of the discussion centered on world affairs, notably the US tariffs, the latest on the wars in Ukraine and Gaza, and the conflict in the DRC. On the domestic front, Prime Minister Meloni had just concluded her trip to DC to meet with President Trump, designed to insert Italy as a kind of link between the US and the EU.  Promises of additional Italian investment in America was offered as a means of conditioning the impact of any future tariffs.

While our chats also centered a little on Italy’s domestic political agenda, the economy was front and center. Growing by an expected 0.3% this year, the economy will be weighed down by the US trade tariffs and higher energy costs.  The US is the number two destination for Italian goods.  Support will be afforded by lower borrowing costs and the continuing rollout of Italy’s Recovery Fund program, which is to bring in billions in investment into the country.   Given the 90-day reprieve declared by the US government in the imposition of the tariffs – and given that the Americans seem to be willing to negotiate different trading arrangements – the growth forecast risk is to the downside.

Inflationary pressures are present, with core prices rising over 2% on the year in April. The budget deficit should come in at around 3.3% of GDP in 2025, with the government planning to bring the gap in line with the EU’s ceiling of 3% of GDP.

On this score, while the meetings were being conducted, S&P Global Ratings had upgraded Italy to BBB+ from BBB – which is three levels away from junk. The elevation was in line with expected uprades by Fitch Ratings and DBRS Morningstar.  Interestingly, Italy’s borrowings are north of 130% of GDP, and pressure on the public accounts will come from increases in defense spending and the fallout from the US tariffs.

Looking at these aspects of the economy, the upgrade nonetheless provided a boost to Prime Minister Meloni’s overall credibility and her government’s efforts to tame public spending. One of my favorites risk metrics – the spread between Italian and German bonds — remains far lower than when Meloni assumed office in 2022.

Chatting with colleagues and clients about Italy’s economic issues was especially unique in Firenze, as the city has a very well-known history in commerce and banking – and, of course, the arts.  As most know, the city was one of the most industrialized in medieval Europe, thanks to its thriving textile industries, and the impact the Medici family had on banking throughout Italy – among other fields – is legendary. Discussing the present and near-future with this story as the backdrop was memorable.

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New and existing clients should note that our popular Researchers’ Dataset (RDS) series – containing updates from 2024 – is now available!  The RDS series – derived from our ICRG data – continues to yield unique insights into a range of topics that explore the empirical connection between geopolitical risk and such subjects as asset behavior and prices, inflation and monetary policy, the economic costs of war, forms of internal conflict, and contract repudiation, to name a few. Contact us at custserv@prsgroup.com to acquire about acquisition of the RDS updates or a multi-year series.

Our various AI platforms continue to be built out as we move along in the development of our generative language models.  The AI meeting we attended in Montreal brought us in touch with several vendors that will help enhance our offerings.  Stay tuned and don’t hesitate to contact us for more information.

The new layout of the new PRS site (www.prsgroup.com) is finished, so feel free to have a look when time permits. The site maintains the basic character of our existing one but adopts a more modern approach – given the emphasis on the importance of our geopolitical risk data – all the while respecting such periods of innovation and new thinking as the Renaissance and the French Enlightenment.  In the text, there is a nod to Voltaire, and ‘Gigi’ – our gargoyle mascot – maintains his predominant presence as he represents the power to ward off evil spirits and protect buildings they occupy and those inside!

Our new video series is currently in production.  Named ‘Au Courant’ after a previous publication of PRS’ that enjoyed considerable success, the new bi-weekly series will include synopses of timely geopolitical risk events and what they mean for investors and business; trends in the ICRG data and country forecasts; recent academic findings using the PRS data; and the occasional interview with academics and practitioners in the field.  

PRS has now surpassed the 7.5 million data point mark in relation to our curated geopolitical risk series!  No other risk firm can offer such depth; nor can they claim the mantle of being consistently used in leading academic scholarship and appearing in the top journals, which, according to JSTOR, now occupies just under 1,000 published articles and book chapters.

April was a solid month for new and returning clients, ranging from some of the world’s top universities to the largest institutional investors throughout the US, Europe, the UK, and the Middle East and Asia.   We would like to welcome several large emerging market investment firms from the US and various treasury departments from Europe.

Our ICRG political risk scoring changes were significant in April, with over half of the universe of country coverage being adjusted!  The fallout from the US tariffs were notably significant as they are beginning to bleed into some countries’ growth projections and expressing themselves in forms of popular discontent.

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As always, ICRG and related PRS data continue to be the gold standard of all geopolitical risk data among the scholarly and research communities. For example, a new published piece in Conflict, Security, and Development, using our data, looked at the connection between wages and internal conflict.  What the authors found was that a decrease in real wages significantly increased the risk of internal conflict, especially in countries experiencing elevated levels of conflict. Conversely – and this was the interesting finding – increases in real wages do not consistently reduce conflict, except in scenarios with heightened political violence/terrorism and civil disorder. (https://lnkd.in/euzucUP7)

Additionally, while the weakening in Treasury prices and a softer dollar suggests overseas investors are losing confidence in US assets, there is some good work that fully fleshes out how geopolitical tensions between countries influence the cross-border asset allocation of investment funds.

Using our ICRG data, a recent study from the IMF’s Working Paper series drew a solid connection to the gravity model and geopolitics and why the latter is so important now. (https://lnkd.in/e-JcvkEx)

Finally, in a recent paper titled ‘Are Bad Government a Threat to Sovereign Defaults?  The Effects of Political Risk on Debt Sustainability,’ ICRG was cited as ‘a…statistically significant determinant of sovereign bond yields and growth…’ (https://lnkd.in/ePk2ANEd).

Grazie e goditi tutto ciò che la vita ha da offrire.

CM