CETA talks near collapse. Venezuela slips into dictatorship. Last US economic data before election released. Offensive against ISIL continues. All in The Week Ahead.
Canada reassesses trade situation as CETA talks collapse again
This Thursday, Canadian Prime Minister Justin Trudeau will visit his EU counterparts, which may involve at least an attempt to resuscitate the EU-Canada Comprehensive Economic and Trade Agreement (CETA) talks. The agreement, which has already been signed and is currently in the ratification phase, is slated to remove tariffs on EU and Canadian goods (though it did little to attack the major agricultural non-tariff barriers both Canada and the EU face). Last week, Canadian Trade Minister Chrystia Freeland walked out of talks with the EU on ratifying the agreement when the Walloon parliament refused to ratify the deal.
Talks have dragged on for months on what had previously been presumed to be a relatively easy ratification process. European Parliament head Martin Schulz announced he would try to get talks going again between Freeland and president of Wallonia Paul Magnette. This division, to say nothing of criticisms by several eastern European governments that Canada previously did not provide visa-free entry for its citizens, and the complications of Brexit on ratification, has created a potentially insurmountable barriers to one of the EU’s largest free trade agreement.
Looking at these developments from a broader perspective, the ongoing complications with ratifying CETA are a very worrying sign moving forward in EU trade liberalization efforts. Canada is already a relatively open economy, and the areas of fiercest disagreement (mostly in agriculture) were largely not addressed in the agreement anyway. Given the grindingly difficult process of a comparably non-controversial agreement (not only does every single EU country have to ratify it, meaning any one complaint could result in failure, but sometimes ratification must also take place at the regional levels), it is highly unlikely that more controversial trade agreements like TTIP will survive the current political environment. Continued trade barriers will further restrict EU growth potential, and the absence of political will to advance trade liberalization pacts moving forward could also slow trade liberalization efforts in other countries (and may also subtly encourage the creation of non-tariff barriers).
Venezuelan lawmakers look for way forward after double blow from Venezuelan authorities
Last week, two major issues emerged that will severely limit the opposition movement’s attempt to restrict the Maduro administration. First, the electoral agency CNE (which is viewed as being extremely close to the government) announced that gubernatorial elections will not be held in December as they are constitutionally obliged to, and instead will hold the elections in mid-2017 (without an official date offered). This has been viewed as an attempt to shift elections to a time when oil prices are higher, preventing the PSUV from suffering a total blowout at the provincial level. Second, the top court announced that rather than instead of 20% of the nation being necessary to enact a referendum to recall president Maduro, now 20% of each state will be necessary.
Although previous actions by the Supreme Court and electoral agencies have been accused of being partial to the Maduro government, these recent moves are essentially bald-faced attempts to preserve the Maduro administration in power by moving around deadlines and dates to prolong the Maduro administration against the consent of the governed, who want to use legally and constitutionally permissible paths to change the government in power. It has become increasingly clear that the government has decided to reject the will of the democratically-elected General Assembly, making future behavior by the Maduro government difficult to predict and likely to be more erratic.
With inflation hovering around 700%, the return of malaria to Venezuela, and one of the most severe recessions in Venezuelan history, Venezuela will likely be an economic dark spot in South America (as other countries’ governments, including Brazil and Argentina, attempt to shift the macroeconomic direction of their countries).
Third quarter US GDP comes out as last major data before election
This week, the Department of Commerce will reveal GDP growth data for the 3rd quarter of 2016, representing the last tranche of economic data before Election Day on November 8. Last week, the Atlanta branch of the Federal Reserve upgraded 2016 growth to 2%, and is likely a harbinger of elevated growth projections this week. Particularly strong economic data would likely bode well for Secretary Clinton’s likelihood of extending the Democrat Party’s 8-year control over the White House (though most indicators had pointed to a decisive shift in her direction anyway, following a series of disastrous moments for the Trump campaign, including the three debates and the revelation of a 2005 Access Hollywood video showing him making a series of lewd remarks indicating he had committed sexual assault).
Stronger growth data, if paired with a significant upswing in wages, could also convince the Federal Reserve to raise interest rates this year. The election and a rate hike are the two strongest political risk elements in the United States for 2016, and strong growth figures out this week could impact both and should be watched with an understanding of its potential political and economic ramifications.
Offensive against ISIL pushes forward as ISIL tries to distract in Kirkuk
This week, the combined forces of the Iraqi army, Kurdish Peshmerga, and U.S. and other military advisors, will continue their assault on the ISIL Iraq “capital” of Mosul, Iraq’s second largest city. The 35,000+ Iraqi soldiers had expected a concerted effort by ISIL to maintain control of the city, in part due to its strategic significance and in part due to its symbolic significance (it’s more difficult to convince fighters to join the cause or sympathizers to contribute funds when the capital itself has fallen).
After several small towns on the outskirts of the city were reconquered by the Iraqi and Kurdish forces, ISIL lashed out: first it executed hundreds of Mosul residents using them a human shields (a common practice for ISIL). Second, it launched an offensive maneuver on Kirkuk aimed at distracting the Iraqi army, though it is doubtful that anything short of a full-out assault would distract the army from completing an offensive it had been planning for months. The Iraqi prime minister has also indicated that, although the current campaign is ahead of schedule, it will still take months to wrest control of the city from ISIL. How ISIL reacts is in contention, but precedent isn’t good: the terrorist group frequently lashes out in overseas attacks when it is struggling domestically. Western governments will likely be on high alert the closer Mosul comes to falling to the Iraqi army.
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.