GRI’s Weekly Risk Outlook

GRI’s Weekly Risk Outlook

Japanese PM Abe seeks assurances on defence and trade. US Fed to keep rates low but focus on dollar surge. India to deepen influence when Afghan president Ghani visits. ASEAN summit overshadowed by China’s actions in South China Sea. All this in GRI’s Weekly Risk Outlook.

Japanese PM Shinzo Abe visits US to discuss TPP, defence

On Wednesday, Japanese Prime Minister Shinzo Abe will address a joint session of Congress as part of an extended official visit beginning Sunday, April 26. Mr. Abe is the first Japanese PM to make such an address.

The agenda for the visit is broad, but the Trans-Pacific Partnership (TPP) multilateral trade agreement as well as defence cooperation in Asia will be at the top of Abe’s list when the two alliance partners meet.

Do not expect any major breakthroughs on the TPP, though. Last Friday, President Obama’s deputy national security advisor, Caroline Atkinson, put it bluntly after several days of negotiations in Tokyo: “We’re not there yet.” Japanese agriculture lobbies and American carmakers still resist change.

Addressing Congress, Mr. Abe will emphasise the economic benefits of the agreement to both countries, all but commenting on the ‘fast track’ promotion authority, which only just passed the Senate floor last Wednesday and could push the TPP through more quickly.

Expect Mr. Abe to talk to Congress on deepening defence cooperation in Asia given China’s growing military presence, reiterating the close alliance between the two countries and highlighting his vision for Japan’s evolving role in Asia.

He may promise to shoulder more of the burden of defence in the region, as the U.S. has long pushed for, after his cabinet in July 2014 adopted a resolution reinterpreting the Japanese constitution to allow military support to U.S. forces. Mr. Abe’s proposed budget for 2015 includes an all-time record defence expenditure.

In return, he will likely look for assurance that the U.S. will come to Japan’s aid in any potential dispute with China. While some members of Congress may give him just that, he will be looking for a while for any substantial promises barring joint military exercises.

The Obama administration will likely emphasise cooperation in the region and avoid any statements that can jeopardise relations with China, where President Xi will be watching reactions to Mr. Abe’s visit closely.

US FOMC statement keeps rates low after weak Q1

Also on Wednesday at 2 p.m., the U.S. Federal Open Market Committee (FOMC) will release its April statement after a meeting starting on Tuesday. Do not expect Fed chair, Janet Yellen, to raise interest rates yet, as was already announced in March.

Still, she will likely prepare markets further for potential rate hikes later in 2015 with subtle language changes pointing to a weaker-than-expected first quarter.

Although core CPI strengthened somewhat by 0.2% in March to an annualised 1.8%, total employment only increased with 126,000 new jobs in the same month leaving the unemployment rate unchanged at 5.5 percent after several months of +200,000 employment figures. That leaves much to be wanted for Yellen’s target rates before she raises rates.

The effects a surging U.S. dollar has had on labour market improvements and Q1 GDP figures – also released on Wednesday – is a primary concern for Fed officials. The strong dollar, which has appreciated roughly 15 % since mid-2014, may hurt prospects of achieving the 2.5% annual growth forecast by making U.S. exports less competitive.

While many expect weaker economic performance to produce a commitment not to raise rates at the FOMC meeting in June, as was otherwise expected from earlier announcements, that is not likely.

The Fed will phrase its language to keep all options open and let decisions remain data-dependent, leaving investors to focus on officials’ interpretation of key economic figures.

The key question the committee will ponder is whether Q1 figures are signs of a significant slowdown, or whether 2015 will repeat 2014, when weak numbers in the first quarter were followed by a strengthening later in the year.

At March’s meeting the majority of FOMC officials still predicted rate hikes in 2015 from their current range of zero to quarter-point level. September is starting to look more attractive for them.

Afghan President Ghani seeks to solidify relations with India in first state visit

Seven months into his term as President of Afghanistan, Ashraf Ghani will visit India Monday to Tuesday.

The visit will be a chance for New Delhi to regain strategic ground lost to China and Pakistan, whose overtures, military agreements, and investments have largely outpaced those of the Indian government.

China’s emerging role in the region, underscored by its recent announcement of a $46 billion investment package in Pakistan, leaves India scrambling to reassure Afghanistan of their strategic alliance.

India, not necessarily recognized as a “donor country,” is the 5th largest bilateral donor to Afghanistan, providing the country with $2 billion in aid for infrastructure, education, and agriculture. A consortium of Indian companies is currently constructing the Hajigak iron ore mine in Afghanistan and a $200 million hydropower dam in the western part of the country.

New deals and agreements, however, will be paramount for Indian PM Narendra Modi to stem the tide of influence in the region. The testy Chabahar port deal, a tripartite transit agreement involving India, Afghanistan, and Iran, is expected to be on the leaders’ agenda.

The deal, centered around the Iranian port, would allow India access to landlocked Afghanistan, and potentially on to Central Asia and Europe, without entering Pakistan.

India will also seek to counter Pakistan’s rising military influence in Afghanistan, as the fight against the Taliban brings those two countries closer together. India recently delivered three Cheetal helicopters, and development of a wider weapons package is expected.

Southeast Asian ministers meet at ASEAN summit dominated by South China Sea dispute

The 10-member Association of Southeast Asian Nations will meet April 26th-27th in Manila, the Philippines. The summit, hosted by rotating ASEAN chair Malaysia, has so far been dominated by discussion over China’s expanding footprint in the South China Sea.

“China is poised to consolidate de facto control of the South China Sea,” said Philippine Foreign Affairs Secretary Albert Del Rosario, calling on the group to take a formal stand against perceived Chinese territorial aggression. The Philippines accused China’s coast guard last week of using water cannon against Philippine boats fishing in a disputed area.

Malaysia, however, has sought to downplay the sea dispute, wanting instead to focus on matters of trade, financing, and investment.

China, in particular, with the recent establishment of its Asian Infrastructure Investment Bank, will be paramount to financing infrastructure projects in the region. China is the ASEAN bloc’s biggest trading partner, amounting to $102 billion in 2014.

Trade outside of the region will also on tap at the summit. The European Union agreed yesterday to renew talks over a free-trade agreement with the ASEAN bloc.

Free-trade negotiations, stalled since 2009, come as ASEAN is expected to merge into a single market by December 2015. The EU is ASEAN’s second-largest trading partner, amounting to $248 billion in 2014.


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. 

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