GRI’s Weekly Risk Outlook

GRI’s Weekly Risk Outlook

Greece proposes reform measures to Eurozone finance ministers. Presidents Obama and Tusk meet to speak on state of transatlantic diplomatic ties. Perth hosts iron and steel talks as commodities slide. United States releases job and consumer data. Brazil’s President Rousseff struggles to keep the peace as economic reform hurts bottom line. All in this week’s GRI Weekly Risk Outlook.

Greece Presents Reform Proposals to Eurozone

On Monday, Greek Finance Minister Yanis Varoufakis will present a series of reform measures to Eurozone finance ministers in Brussels.

The Greek government also needs to secure additional funding or relief to cover the refinancing or repayment of $7.2 billion it owes this month, though it is uncertain whether this will be discussed at Monday’s meeting.

The €7 billion repayment situation is particularly delicate in Greece, as the Greek economy is largely locked out from access to international credit and has been disallowed from issuing short-term debt by ECB President Mario Draghi.

At this time, reforms are expected to include: hiring inspectors to clamp down on tax evasion, reducing operating costs for government ministries, reforming the public procurement system, and initiating new taxes on Internet gambling.

President Obama and EU President Tusk Meet to Discuss Transatlantic Ties

On Monday, President Obama will host the President of the European Council, Donald Tusk, to discuss transatlantic ties.

They will have a great deal to discuss: the Ukraine situation has created new fissures within Europe that risk collapsing the united front forged by the United States and European Union against Russia.

Several EU member states have quietly chafed at the economic effects of the Russian sanctions, and a few have actively rebuffed the efforts. Cyprus recently signed an agreement to allow Russian naval ships access to Cypriot ports in exchange for a debt reduction deal.

Hungary also seems to be actively working against the sanctions, with Victor Orban signing a gas deal with President Putin in Budapest.

Though less alarming, Finland too struggles to reconcile its suspicion of Russian intentions with its economic reliance on the eastern European juggernaut.

Though the the Ukraine situation will likely absorb a majority of the presidents’ time, the Transatlantic Trade and Investment Partnership is also expected to be on the agenda, with negotiations continuing at a very slow pace, a consequence of increased divisions over issues ranging from food labeling and dispute mechanisms.

Iron and Steel Experts Meet in Australia to Discuss Commodities Trends

On Tuesday, the west coast city of Perth, Australia will host the 2-day 18th Annual Global Iron Ore & Steel Forecast Conference.

The event will include some of the largest mining and metals companies, including BHP Billiton, Rio Tinto, and BG Iron Limited. Many of the major commodities industries have been hit by lower growth and demand in China, and on Friday iron ore hit a 6-year low following the release of China’s lowered economic growth target to 7%.

Significant expansions of iron mining in Western Australia will likely contribute to a glut in the industry.

Iron ore prices fell 47% in 2014, and weak demand in China, Japan, and the EU are not likely to improve the situation.

Other commodities face similar problems; the fall in copper prices has taken a toll on the Chilean economy, sugar and grain price declines are weakening the Brazilian real, and the drop in cocoa prices is causing strain to the economies of West Africa.

United States Releases Jobs and Consumer Data

On Thursday, the U.S. Commerce Department will release retail sales figures for February.

Many economists expect sales to have jumped, due in part to an increasingly positive economic environment and falling unemployment.

Unemployment now stands at 5.5%, and the U.S. has entered its 20th month of adding at least 200,000 jobs to the market.

On Friday, the University of Michigan will release its Survey of Consumers gauge, which measures both current consumer sentiment as well as consumer expectations for the coming year.

Brazilian President Struggles to Keep Political Coalition as Economic Reforms Begin to Bite

Last Thursday, President Rousseff was caught by surprise when Senate President Renan Calheiros threw out an executive order to increase payroll taxes as part of a broader effort by newly-appointed Finance Minister Joaquim Levy to reform the Brazilian economy and avert recession.

Political tensions have begun to grow between Rousseff and both the center-right political parties and the more leftist contingents of her Workers’ Party (PT).

The ongoing Petrobras scandal is also likely to explode in the coming weeks as Special Prosecutor Rodrigo Janot submitted a list of 54 legislators to the Brazilian Supreme Court to initiate formal investigations. Although the names on the list are currently confidential, there have been persistent rumors that both Senate President Calheiros and President of the Chamber of Deputies Eduardo Cunha are on it.

Although neither leader is a member of President Rousseff’s Workers’ Party (both belong to the centrist/center-right PMDB), the possible criminal investigation of two of the three most powerful politicians in Brazil could have the potential to paralyze the political climate as legislators await further allegations and investigations.

To add to Brazil’s macroeconomics struggles, the Brazilian real fell to a 10-year low against the dollar at nearly 3-to-1, and the country’s massive soybean sector has been hit by protests from truckers over higher diesel costs.

Even in an optimal political environment, significant macroeconomic reforms in Brazil would be difficult.

With the potential for political schism as the Petrobras scandal reaches its climax, the world’s 7th largest economy will likely face significant economic headwinds in the weeks and months ahead.

The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes. 

The Weekly Risk Outlook is written by GRI analyst Brian Daigle. 

Categories: Economics, The Week Ahead

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