Russia and Ukraine announce a new round of gas talks as Ukraine feels financial strains. Argentine farming coalitions plan protests. Australia considers cutting interest rates. U.S. Congress debates the funding of Homeland Security. Hong Kong ponders a response to Chinese “shopping tourism.” All in this week’s GRI Weekly Risk Outlook.
Gas Negotiations between Ukraine and Russia
The Russian government has confirmed that it will be holding gas talks with Ukraine in Brussels on March 2. Russian natural gas supplier Gazprom and Ukrainian state energy firm Naftogaz are in negotiations because gas supplies that have already been paid ran out last week, and Russia has indicated it would not supply gas to Ukraine unless it paid upfront for the next shipment.
Adding a further wrinkle to the dispute, Gazprom indicated last Thursday that it would exempt gas supplies from the rebel-held regions of Luhansk and Donetsk from potential gas cut-offs. If talks break down as they have before, both Ukrainian gas and European gas supplies sent through Ukraine could be reduced significantly, adding even greater strain to Ukraine’s collapsing economy.
With the Ukrainian hryvnia having lost half its value in the past 2 months and capital controls enacted by Parliament, the World Bank already projects the Ukrainian economy to contract by at least 2.5% this year after contracting 8% last year.
In the same study, the World Bank also lowered Russia’s growth projections to contracting by 2.9%, though this estimate does not include the effect of new sanctions under consideration by the EU and United States.
Argentine Farming Coalitions to Hold National Protests
On Thursday, the four major farm lobbies of Argentina – the Argentine Rural Society (SRA), the Argentine Farming Confederation (CRA), the Coninagro Cooperative Federation, and the FAA Small Farmers’ Association – will hold a protest on March 3 against President Kirchner’s agriculture policies, particularly high export duties.
In 2008, President Kirchner raised export duties in response to rising commodity prices and rising demand in Asia, affecting output negatively. The duties led to widespread protest in the farming sector, but protesters were not successful in lowering tariffs even after commodity prices fell.
Adding to the political ramifications of the current protest, former FAA chairman Eduardo Buzzi is running for governor of Santa Fe under the non-Kirchner Peronist Renewal Front Party.
The Renewal Front leader, Sergio Massa and presidential contender Mauricio Macri (Buenos Aires mayor and leader of the center-right PRO party) have both indicated a willingness to reduce or remove export duties on major Argentine commodities if elected president, while Kirchner Peronist candidate Buenos Aires Governor Daniel Scioli has been relatively quiet regarding his position on agriculture reform.
Although damaged politically from fallout over the 2008 protest, the farming lobby retains significant influence in Argentine politics, and any coalescing of support from the farming and agri-business community around either Macri or Massa could serve as a significant boost before the October 23rd elections or August primaries.
Australia Central Bank Could Cut Rates Again
On Tuesday, the Reserve Bank of Australia (RBA) will meet to discuss whether to maintain interest rates at 2.25% or reduce the rate to 2%.
Market analysts were surprised when the RBA decided last month to cut its rate from 2.5% to 2.25% in an attempt to raise consumer and business confidence following weaker-than-expected GDP growth figures and a fall in Australian income from the previous quarter.
The cautious signals from U.S. Federal Reserve Chair Janet Yellen in testimony last week to Congress on raising interest rates in the near future could make a rate cut from the RBA more appealing as a means of strengthening against the U.S. dollar and growing exports in the near-term.
On Wednesday, Australian GDP growth figures will be released.
U.S. Congress Will Continue to Grapple with DHS Funding
Following the shocking defeat of a 3-week extension of funding for the Department of Homeland Security (DHS) in the House of Representatives that some have argued will serve as a potentially crippling blow for House Speaker John Boehner’s record (and possibly his gavel), U.S. Congress will be consumed this week with figuring out a way to fund the $60 billion, 200,000-employee agency.
For the past month and half, the members of both the Senate and House of Representatives have disagreed over how to fund the agency that oversees border control and several national security priorities. The main point of contention lies with a series of provisions added by House Republicans that would effectively gut President Obama’s November 20 executive orders on immigration.
Senate Democrats have balked at such language, and have successfully filibustered the House-passed DHS bill 4 times. Despite the Senate passing a “clean” DHS bill on Friday 68-31, House Speaker John Boehner refused to take up the legislation, and instead offered his own stopgap measure to extend funding for the Department for 3 weeks (which failed 203-224).
The dispute over DHS funding will likely take up a majority of the floor time in the House and Senate, as measures relating to tax reform, trade liberalization, and education policy fall by the wayside.
Hong Kong will Likely Respond to Concerns Over Chinese Shopping Tourism
Adding a new layer of tension to relations between Hong Kong and mainland China beyond the democracy protests, Hong Kongers are becoming increasingly agitated over what many refer to as “parallel trading” – a practice by which mainland Chinese shoppers travel to the island for large quantities of high quality goods to be resold at higher prices on the mainland.
Creating both price spikes in Hong Kong as well as goods shortages, the practice has led to an announcement last week from Hong Kong Chief Executive CY Leung, indicating that he would not expand the Individual Visit Scheme for mainland tourists in response to the situation, and may seek to reduce the ability of mainland Chinese tourists to frequent the island.
Hong Kong protests against mainland tourists have increased recently, and tourism from the mainland is expected to fall due in part to an “unwelcome” atmosphere on the island.
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.
