European leaders discuss the economy and migration. South African central bank explores economic concerns. U.S. presidential campaign continues as new economic data is released. Turkey turns its attention to the U.S. Monetary policy forum brings together U.S. experts in Wyoming. All in The Week Ahead.
European leaders meet to discuss the economy and migration
On Monday, German Chancellor Angela Merkel, Italian Prime Minister Renzi, and French President Hollande will meet in Ventotene to discuss the migration crisis and economic growth. All three face increasingly difficult political situations at home that could make resolving these matters more difficult.
Chancellor Merkel will have two local elections that will test the durability of the CDU against the anti-immigrant Alternative for Germany (AfD) party, one in her home state of Mecklenburg-Western Pomerania and the other in Berlin. This means she’ll have to contend with pressures both on the left and the right that could constrain her policy flexibility. In France, President Hollande’s persistently high unfavorability ratings as well as France’s unemployment rate could harm the Socialists’ chances of maintaining the presidency as well as its marginal seats. And in Italy, Prime Minister Renzi is facing a fall referendum that would reduce the Italian Senate’s legislative powers and remove it being directly elected by the people to improve efficiency. Renzi has put much of his credibility at stake with the referendum, even threatening to resign if the referendum failed.
These upcoming votes have put all three European leaders in domestic constraints that will limit their ability to act with a unified voice in resolving European economic and immigration problems. It appears less than likely that the three will take major policy steps in either economic growth or immigration areas with potentially close elections where an opposition party could harness any change in policy to bolster its advantage.
South African central bank explores domestic and global economic concerns
On Monday, the governor of the South African Reserve Bank, Lesetja Kganyago, will speak with reporters regarding South Africa’s domestic economy as well as international economic concerns. On South Africa’s economic front, the South African rand has slowly gained value against the U.S. dollar, going from a January peak of 16.8 to the dollar to about 13.5 to the dollar today. This has occurred despite the strengthening dollar, although the recent Fed minutes expressing hesitation about a rate hike did weaken the dollar internationally.
Economic growth, however, has been anemic: in the last recorded quarter, the country’s economy contracted 1.2%, following two quarters of near-zero growth the year before. Several have pointed to corruption, poor governance, and an increasingly divided electorate as one of the reasons for South Africa’s slowing economy, as well as an over-reliance on capital flows. With the recent election of DA councilor Solly Msimanga as mayor of Pretoria, the political divisions in South Africa are expected to widen, and given the ANC’s dominance of electoral politics since the end of apartheid, the lack of experience working with other political parties to forge cohesive policy could further limit South Africa’s economic potential.
U.S. presidential campaign continues as new economic data is released
The presidential election cycle continues this week with Clinton events in North Carolina and Nevada and Trump events in Texas and Mississippi. Meanwhile, the Commerce Department will release data Tuesday on single-family home purchases and previously owned homes, with both likely to show improvements given the improving employment situation. Improving economic data will likely help Secretary Clinton’s campaign, given that two of the strongest indicators historically of voter support are the president’s approval rating and the health of the economy. In addition, the Republican nominee has begun discussing home ownership as a metric of America’s economic decline.
Last week Trump experienced another week of turmoil after he announced his new campaign advisors Kellyanne Conway and Steve Bannon as well as the resignation of his former campaign manager Paul Manafort. The Trump campaign appears to be headed for collapse, with many Republicans growing increasingly concerned that not only will Hillary Clinton swamp the Electoral College with polls showing her ahead in the swing states of Ohio, Nevada, Colorado, Virginia, Pennsylvania, Florida, and New Hampshire, but that her victory will have strong enough coattails to flip the Senate from Republican to Democratic control. Should that occur, this will likely make both judicial and cabinet-level nominations much easier for an incoming Clinton administration.
Following Russia, Turkey turns its attention to the United States
On Wednesday, Secretary of State John Kerry will visit Turkey to move to mend ties with its NATO ally. After the coup, relations between Turkey and the United States turned negative as President Erdogan felt the U.S. and EU countries did not respond forcefully to the coup attempt, and the U.S. and EU were noticeably concerned with the subsequent crackdown on the press, academia, and civil society following the attempt. This meeting also follows last week’s meeting between Presidents Erdogan and Putin, where the two improved ties between Russia and Turkey following the Turkish shoot-down of a Russian plane and the latter’s retaliatory sanctions.
It is unclear, though, the extent to which these meetings will mend relations, given that the U.S. still maintains significant concerns with the Turkish government’s recent crackdown — particularly if the President Erdogan moves to amend the constitution to expand the powers of the presidency. 2017 could shape up differently though: with a new U.S. president and Congress, a possibly new French president and German parliament, relations with Turkey could undergo significant shifts, causing one of the biggest headaches within the NATO alliance.
Monetary policy forum brings together U.S. experts in Wyoming
On Friday, Federal Reserve chair Janet Yellen will speak at the Jackson Hole, Wyoming Monetary Policy Symposium, hosted by the Kansas City Federal Reserve Bank. Following the release of last week’s minutes from the Fed’s monetary policy meeting, where there was a very mixed view on raising interest rates soon, those watching for an interest rate hike and the many reverberations of such a decision will tune in to the yearly Jackson Hole session. Typically, the Federal Reserve doesn’t make major interest rate decisions right before a presidential election, though a number of FOMC members have indicated their belief that the unemployment rate is low enough to merit an (albeit small) interest rate hike in September. The Jackson Hole session will be the last major forum for Federal Reserve bankers to gather in a public space to give their leanings on an interest rate decision.
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.
