Venezuela teeters towards constitutional crisis following election delays and calls for impeachment. Strong U.S. growth data may buoy Democrats heading into final election stretch. EU growth may expand as trade hurtles are overcome. UK likely to maintain interest rates. All in The Week Ahead.
Venezuela teeters towards constitutional crisis following election delays and calls for impeachment
Following last week’s announcement that not only would the gubernatorial elections held nationwide would be postponed from this December to next year at an ill-defined point and that the plebiscite to recall President Maduro would require not 20% of the national electorate — as had previously been assumed and was the standard used in the unsuccessful 2004 referendum to recall president Hugo Chavez — but 20% of each of the states, the National Assembly has reacted in outrage and has since moved to hold impeachment proceedings against President Maduro. Dozens of people have already been injured in national protests and strikes on the presidential palace. Although the trial has been viewed as largely symbolic as it would require the approval of the judiciary, which is highly unlikely, particularly given recent actions to support the Maduro government, it has become a flashpoint for the opposition. In response to the government shutting off the power of the legislature as it was conducting proceedings, one parliamentarian tartly responded, “The federal legislative palace was built [in the 19th century]. In that era there was no electricity and they held sessions anyway.” Both supporters and opponents of the government have compared recent events to the 2002 coup against President Chavez, though it is uncertain whether it will go that far. However, many of Venezuela’s leading metrics like inflation, growth, and poverty are reaching nearly unprecedented levels in recent Venezuelan history. Inflation in particular is generally believed to be the highest in the world right now. Unrest in Venezuela is such that global oil prices are actually rising because of it, so Venezuela’s problems may start to more aggressively bleed into global markets.
Strong U.S. growth data may buoy Democrats heading into final election stretch
The U.S. Presidential, Senate and House elections are finally reaching the end of their long and arduous journey. Secretary of State Hillary Clinton has established a robust lead in national polling, on average hovering between 5 and 7 points right now, and appears to have forged strong enough leads in enough states that collectively constitute a majority of the nation’s electoral college votes. That being said, neither campaign is taking anything for granted; the Clinton campaign raised over $100 million in October to prepare for get out the vote efforts in key swing states and has moved aggressively to swing a half dozen very close Senate races and a slew of Congressional seats. Republicans have responded with their own ad buys. Donald Trump’s main selling point, that he can boost the economy with his business skills, may also be hindered with last week’s 3rd quarter GDP growth statistics, which showed a jump from 1% in the first quarter to nearly 3%. This Friday will also include employment statistics from October, providing another snapshot of the economy for those who haven’t yet voted. Some election experts are projecting that as many as 40% of this year’s voters may end up voting early. As of last Friday, 17 million people had already voted.
EU growth may expand and trade hurtle may be overcome
This week, the Eurozone will release its own Q3 2016 growth data, with expectations hovering around a 0.5% q/q growth and as much as 1.5% year on year growth. This economic data will represent the first occasion where the Brexit vote will have been fully digested by European markets. For the Eurozone, the Brexit vote is a double-edged sword; on the one hand, decreased confidence or increased uncertainty in the European economy could reduce the growth potential of the Eurozone. On the other hand, the falling value of the pound against the Euro could make UK imports to the EU cheaper, though it could also make Eurozone exports to the UK more expensive. On the trade front, the Walloon Parliamentary blockade of the EU-Canada CETA deal appears to have now been resolved following major negotiations with the Belgian, Canadian, and EU governments. It will now have to be signed off on by every EU government’s parliament, which may prove tricky in a few places. The UK is in a somewhat interesting position on CETA: ratifying the CETA agreements means joining a free trade agreement it will no longer be an official member of once it withdraws from the EU, meaning it would then have to re-ratify a trade agreement with Canada.
UK likely to maintain interest rates
On Thursday, the Bank of England will hold its monthly monetary policy meeting. It is currently expected to maintain interest rates at .25% following its August decision to lower interest rates from its 7-year .50% rate, acknowledging the impact of the Brexit vote on the short term projections of the British economy. The Bank of England has indicated its willingness to lower interest rates further, though it does not appear likely that it will occur in this meeting. There are mixed signals regarding the impact of Brexit on businesses and the economy, though the general thrust appears to be negative in the short and medium run, but could recover in the long run depending on the position it takes following complete separation. Several companies have indicated they may withdraw from the UK if it follows through with Brexit, and a warning from the Japanese government was leaked to reveal overarching concerns across major economies invested in operations in Britain. Governor Carney’s press conference regarding the Bank’s decision could set the stage, or at least give a working indication of the Bank’s thinking regarding the strength of the British economy moving forward. The inability of the BOE to lower rates much further — Carney has suggested that negative interest rates are a possibility, but has previously been reluctant to the idea — has limited the ability of the Bank to act in the event of ongoing reduced growth or the more existential shock of the May government actually moving forward in March with the invocation of Article 50, though it may shift to more unconventional means, which has had mixed success in other places.
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.
