A spate of protests across several emerging markets (EMs) is reigniting concerns over economic stability and long-term financial health. From Turkey to Indonesia, social unrest has flared up over political repression, economic grievances, and policy shifts, with the potential to reshape investor sentiment across the developing world.

Behind these headline problems, as bne IntelliNews has argued, there is a fundamental shift underway changing expectations and the liberal rules-based international order slowly gives way to a new transactions multipolar world order that is a result of the years of polycrisis, but now catalysed by the advent of Donald Trump’s arrival in the White House.

The unrest is Turkey is currently catching the headlines as it plunges into its worst political crisis since the coup attempt in 2016. Mass demonstrations have erupted following the detention of popular opposition figure and Istanbul’s mayor Ekrem Imamoglu.

“There’s clearly a risk that prolonged protests raise the country risk premium and put further pressure on the lira,” Shilan Shah, deputy chief emerging markets economist at Capital Economics, said in a recent paper.

Turkey’s highly respected Finance Minister Mehmet Simsek told investors on March 25 that the impact on the economy of market fluctuations caused by a selloff in Turkish assets after the detention of Istanbul's mayor would be “limited and temporary,” but investors have yet to be convinced. Turkish President Recep Tayyip Erdogan has been lambasted as a “dictator” and what little creditability he had left as the leader of a “democratic” country has been shredded.

In this context although Turkey’s financial situation has improved recently, years of mismanagement may come back to bite as the economy is put under new pressure. Shah notes that “weak balance sheets are still a bigger problem in Turkey and Romania than in Indonesia.”

Elsewhere, Hungary has also seen persistent mass protests over the government’s ban on LGBTQ+ Pride events, while in Indonesia, demonstrations against President Prabowo’s policies have intensified. In Romania and Serbia, protests have evolved into broad-based anti-government movements, reflecting deep-rooted political dissatisfaction. In Serbia in particular, Serbian President Aleksander Vucic has failed to curb the largest demonstrations the country has ever seen, sparked by a tragedy that killed 15 after a railway roof collapse in Novi Sad last month.

Romania’s balance sheet issues, in particular, pose a significant challenge, according to Capital Economics. “The budget deficit last year came in at more than 8% of GDP, meaning there is little scope to loosen policy,” Shah warns. “But equally, efforts to rein it in could promote a broader rise in support for extreme parties.”

According to Shah, there are four key factors determining whether protests leave a lasting economic impact: their duration and intensity, the strength of national balance sheets, disruption to critical economic sectors, and the potential for policy shifts. “A peaceful one-day protest will be less disruptive than a violent 90-day protest,” he observes, emphasising that the scale of disruption is often more important than the sheer number of protestors.

One of the most sensitive areas is tourism, which remains highly vulnerable to perceptions of instability. The Hong Kong protests of 2019, for instance, pushed the territory’s economy into recession as collapsing tourism revenues and retail spending took their toll. The protests pushed the territory’s economy into recession with GDP shrinking by 1.2% in 2019, largely due to collapsing tourism and retail revenues.

In a similar vein, the Arab Spring protests that erupted in Egypt and Tunisia were followed by severe balance of payments crises driven by plummeting tourist arrivals. Egypt's GDP growth rate plummeted from 5.1% in 2010 to 1.8% in 2011, while Tunisia experienced a similar contraction from 3.1% to -1.9%.

Protests impacting manufacturing and transport can also wreak havoc. Shah recalls how “strikes by truck drivers in Brazil in 2018 brought the country to a standstill, causing a sharp, albeit temporary, drop in activity and a rise in inflation.” Brazil’s GDP growth in 2018 was a meagre 1.1%, down from 1.3% in 2017, as the strike paralyzed transportation and disrupted supply chains across the country. Disruptions in key industries are often the trigger for economic distress, particularly in economies reliant on specific sectors to drive growth.

But the most crucial factor, Shah believes, is whether unrest results in permanent shifts to policy or perceptions of political risk. “Protests in Chile in late 2019 started over a subway fare hike but spiralled into a much broader debate about the relationship between the state and the public,” he notes. “That effort to re-write the constitution, although ultimately unsuccessful, left Chile with a permanently higher risk premium relative to its peers.” Chile’s risk premium, measured by the EMBI Global Index, rose by nearly 100 basis points between late 2019 and early 2020.

While none of the current EM protests have yet triggered drastic policy shifts, the potential for significant economic fallout remains. “The probability of a fundamental policy shift is greatest in Serbia and Romania, given that protests there have already dragged on for several months,” Shah says. Protests in Romania, he adds, could even signal a broader turn toward populism in the upcoming rescheduled presidential election.

In contrast, Indonesia appears to be on firmer ground. Its balance sheet is healthier, and the scale of protests remains relatively small given the country’s vast population. However, Shah warns, “A breach of fiscal rules to appease protesters would send a worrying sign to investors about a more populist turn in policymaking.”

The broader lesson from these protests is clear: emerging markets with weak economic fundamentals are more likely to see social unrest translate into economic instability. As investors grapple with heightened geopolitical uncertainty, the spectre of prolonged protests in fragile economies is likely to weigh heavily on their decision-making.