Aung San Suu Kyi conducts peace talks. U.S political incumbents have the edge. Canada releases 2nd quarter GDP figures. Central Bank of Brazil eyes status quo. Japan, South Korea and Russia discuss relations. All in The Week Ahead.
Aung San Suu Kyi conducts peace talks with armed groups
On Wednesday, State Counselor and Foreign Minister and de facto leader of Myanmar, Aung San Suu Kyi, will begin peace talks with armed groups. The talks, which will include assistance from China and the support of UN Secretary General Ban Ki Moon are designed to end a series of insurgencies in the north and east that have limited investment and led to significant strife. The support of China is helpful given a number of the more resistant groups have typically had strong ties with the Chinese state. China may also desire stronger infrastructure investments in Myanmar to link with China. Additionally, the military appears to be on board with the peace talks, despite the advantage to military rule of having perpetual insurgencies to crack down on.
One of the likely topics of discussion is how to accommodate the interests and needs of the various ethnic insurgency groups, such as the United Wa State Army, within Myanmar. One suggestion that has repeatedly been tossed around is a greater decentralization of power and the formal recognition of ethnic groups by the creation of new ethno-centric states. Should a peace deal eventually be hammered down, Myanmar would likely become a hub of investment in Southeast Asia, both in infrastructure and trade.
Primaries for U.S. parties likely to keep incumbents as attention shifts to the debates
On Tuesday, lawmakers in several states across the country will face primary votes to determine whether they will represent their parties in the November elections. Of the two most prominent, Arizona Senator John McCain is likely to win in his bid against Republican primary challenger Kelli Ward, while in Florida, former DNC Chairwoman and congresswoman Debbie Wasserman Schultz is also likely to prevail over her primary challenger Tim Canova.
Both campaigns represent the likely defeat of insurgents against two of the most “establishment” political figures in both parties. Senator McCain, who represented the Republican Party in the 2008 election, has been derided by Arizona Republicans for not being sufficiently conservative, while Senator Bernie Sanders in his presidential bid repeatedly pilloried Congresswoman Wasserman-Schultz when she was DNC chairwoman and has endorsed challenger Canova. The failure of both insurgents to defeat their incumbents — though Senator McCain will likely face a tough general election fight against Congresswoman Ann Kirkpatrick — will likely demoralize both hard core conservatives and liberals as they seek to influence their respective party’s goals and legislative strategies.
Meanwhile on the presidential stage, both candidates Donald Trump and Secretary of State Clinton are likely turning their attention to the presidential debates, which are slated to begin on September 26. For Donald Trump, these debates represent the last chance for the candidate to turn around his campaign as early voting is slated to begin in several states and the general election is 6 weeks after the first debate. There will also be new economic data that will likely enter the political discussion: the Department of Labor will release employment figures for August, with current projections that the unemployment rate fell to 4.8% and income rose.
Canada releases 2nd quarter GDP figures
On Wednesday, the Canadian government will release its GDP growth figures for the 2nd quarter of 2016, with Bloomberg’s survey of economists forecasting a contraction of 1.6%. The fall in GDP figures is likely to due to a large number of factors including the Fort McMurray fire, which cost billions and extended beyond the size of the U.S. state of Delaware and severely reduced the capacity to drill for oil. Even with the remaining oil drilling capacity, the ongoing severe drop in oil prices has negatively impacted oil revenues to the country and driven down the value of the Canadian dollar.
However, given weak global demand, the boost that usually comes from weak currencies in elevated exports hasn’t really occurred, which has helped to explain the slight uptick in the unemployment rate to 6.9%. Additionally, concerns with Europe have diminished Canada’s trading capacity with the EU: the failure of the European Union to ratify the Canada-EU trade agreement (CETA), as well as the continued uncertainty of Brexit has reduced Canada’s trade capabilities with one of its largest partners. A further decline in growth rates could lead the Canadian central bank to gradually reduce interest rates, though given that it is currently at around .5%, it doesn’t have very much further to go without government action.
Central Bank of Brazil likely to maintain status quo
On Wednesday, the Central Bank of Brazil is likely to maintain interest rates at 14.25%, even as the Brazilian Senate begins its trial over impeached president Dilma Rousseff. This may be in part due to the fact that while Brazilian growth is still in the negatives, the negative isn’t as low as it was before, now hovering around -0.25% rather than the -2% trough it reached in 2015. Additionally, investors and hedge fund managers have begun to turn their attention to Brazil as an area where growth could be imminent.
This may be due to the change in administration from Rousseff to Michel Temer, who has encouraged a more business-friendly approach to Brazilian government. However, even if President Rousseff is officially removed from office and Temer becomes the permanent president of Brazil, it is uncertain at this stage if the government will be able to enact many of the tough reforms economists believe are needed to pull Brazil out of recession without a big commodity price spike. The relationship between Temer’s PMDB and Rousseff’s Workers’ Party (PT) may be beyond repair at this point, and the PSD and PSDB have frequently criticized the PMDB for not going far enough in its reform efforts. Additionally, efforts, real or perceived, by the PMDB to water down or hinder the independent prosecutor Janot’s investigation of the Petrobras scandal to protect lawmakers could create a significant popular backlash, as well as severe criticism from the PT, particularly if President Rousseff is removed mostly through PMDB Senate votes.
Leaders of Japan, South Korea and Russia discuss relations
On Friday, Prime Ministers Shinzo Abe and Park Geun-Hye will meet with President Putin in Vladivostok, Russia for the Eastern Economic Forum. The three leaders will discuss trilateral relations and economic development and growth in the region. The meeting is also slated to include discussions over the Russia and Japanese-disputed Kuril Islands. The islands — mostly the southernmost islands of Iturup, Kunashir, Shikotan, and the Habomai rocks, situated in the Sea of Okhotsk and bridging Japan’s northern-most island to Russia’s Kamchatka peninsula — have been disputed at least since the 19th century. There has been little indication that either side would make any particularly significant concessions at this point, especially given both the Russian and Japanese governments include strong hardcore nationalists within their respective majority coalitions. Both President Putin and Prime Minister Abe have made positive comments regarding resolving the dispute, but as neither of the official positions of the Japanese and Russian governments have changed, it appears likely that this dispute will continue. That does not mean, however, that the Japanese and Russian governments will not invest in the region. Quite to the contrary, both governments have indicated a strong desire to discuss increased support and investment in fishing and trade.
The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.
The Week Ahead is written by GRI analyst Brian Daigle.