G20 leaders seek to reboot global growth. TPP tops agenda for ASEAN summit. US Congress returns to policy backlog. BoE governor grilled on handling Brexit. Eurozone ministers tackle Italian banking crisis. All in The Week Ahead.
G20 Summit Brings Together Major Developed and Developing Economies
Throughout the week, China will be hosting the 11th G20 Summit in Hangzhou and many subsequent bilateral meetings with major economies. The summit is likely to involve discussions around the sluggish growth in China and the United States, as well as near-zero growth in the Eurozone and Japan.
Concerns that countries may be incentivized to turn inward and against trade during a time of declining global growth will fill leaders’ schedule. The rise of populism in both developed and developed countries is likely to further economic isolationism, and has led to some political destabilization (including populist parties across Europe, the Brexit vote, and political developments in the United States and the Philippines as just a few examples).
Several countries in the Asia-Pacific region have pressed the U.S. government on whether the United States will ratify the Trans-Pacific Partnership in times of political and economic instability (and resistance from political figures in both the Democratic and Republican parties), including the G20 TPP countries of Japan, Australia, Canada, and Mexico (Singapore, a Chinese invitee to the G20 summit, is also a TPP member).
This summit will also be used as an opportunity for countries to hold bilateral meetings in the margins. President Obama has already met with Russian president Vladimir Putin to discuss a potential deal on Syria. Prime Minister Trudeau and President Xi have discussed Canada-China relations, and European prime ministers are expected to meet with one another as well as the Chinese and U.S. delegations.
ASEAN Summit Addresses TPP and South China Sea
On Tuesday, Laos will host the 28th summit of the Association of Southeast Asian Nations, which is slated to include the heads of state of the United States, New Zealand, Russia, Japan, China, India, South Korea, and Australia.
Similar to the G20 summit, several of the summit attendees are extremely curious to know whether the U.S. Congress will ratify the TPP, particularly as Japan, South Korea, Australia, Vietnam, Brunei, and New Zealand are member states (and South Korea has expressed interest in joining). President Obama is also slated to attend the East Asia Summit, which will occur concurrently in the capitol Vientiane.
The ASEAN summit is likely to discuss the implications of The Hague’s ruling in favor of the Philippines in its dispute with China over control of several islands in the South China Sea, as well unpack recent efforts in member state Burma to reinvigorate peace talks with domestic ethnic nationalist groups.
Additionally, the recent moves by Philippine President Duterte to reduce drug crimes (that have been severely criticized) is likely to be raised privately among members. A formal declaration is unlikely given ASEAN members’ historical resistance to interfering in the internal affairs of its member states.
The final declaration is likely to discuss the ASEAN 2025 goals, which include creating a more politically cohesive and economically integrated bloc, building up the Secretariat and ASEAN bodies, and improving human rights.
U.S. Congress Returns to Slew of Backed Up Policies
On Tuesday, the U.S. House of Representatives and Senate will return to session following its 7-week summer recess. The Senate is currently slated to only be in session for 5 weeks before the November election, and the House for only 4 weeks. They will have a great deal to do in that time.
The U.S. needs to pass a stopgap spending bill to ensure the government does not shut down at the end of September, and the Center for Disease Control (CDC) has already indicated that it is basically out of money to address the Zika virus and will need a significant appropriation to address an increasingly desperate situation in Florida, particularly in Miami.
Moreover, the White House is expected to strongly push for the confirmation of at least one of the board members to the Export-Import Bank. The Bank cannot authorize major loans, as it is currently operating with only 2 members on its 5-member board.
The Senate Democrats have already indicated they have no intention of giving a President Clinton (as they expect they will have in January 2017) a major funding fight in the early days of her administration, while many House Republicans have indicated that’s exactly what they want to do.
It is uncertain which side will ultimately prevail, though the Republicans’ numerical majority in both houses makes it more likely that a short-term continuing resolution, due to run out in January, is a more likely outcome than a year-long agreement.
Bank of England Governor to Speak Before UK Parliament
On Wednesday, Bank of England Governor Mark Carney, as well as Deputy Governor John Cunliffe and other senior BoE officials, will speak before the UK Parliament to discuss the central bank’s recent efforts to lower interest rates to boost the UK economy following the Brexit vote.
Prior to the Brexit vote, Governor Carney had been criticized as a supporter of the Remain campaign, though (ironically) he was praised as one of the few major British policymakers who had a major, actionable plan following the vote to Leave.
The Governor will likely be asked to explore possible future policy actions should the UK economy and the banking sector in particular show signs of weakness or instability. Governor Carney is also likely to be grilled by lawmakers on the other initiatives announced by the Bank in its August 4 decision, including its purchase of £10 billion in corporate bonds and expanding asset purchases by £60 billion.
The BoE has not moved into negative interest rate territory yet, as the Eurozone, Sweden, and Japan central banks have. Governor Carney has indicated his scepticism at negative interest rates, as this would put the Bank in a fairly restrained position, given current rate position at 0.25%.
Eurozone Financial Leaders Meet in Slovakia
On Friday, the Eurozone finance ministers and central bankers will meet in Bratislava to discuss the Italian banking situation and the ongoing impact of Brexit on both the Eurozone and the EU economy.
The Italian banking crisis has become increasingly problematic for the Italian state, and it has been limited by the EU by engaging in “state aid” for its struggling banking sector, despite the personal entreaties of Prime Minister Renzi.
On the Brexit front, the BoE’s decision in August to lower interest rates is likely to put pressure on the competitiveness of the euro. Moreover, as the British government does not invoke Article 50, which Prime Minister May has said her government would not do in 2016, the uncertainty will weigh on Eurozone finance ministers and central bankers across Europe.
Other issues that may be discussed include the recent decision by the European Competition Commission to impose a record $14 billion fine on Apple for the “sweetheart” tax deal it received from the Irish government.
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.