Weekly Risk Outlook

Weekly Risk Outlook

Queen Elizabeth II sets Parliamentary agenda. The G7 meet in Dresden to economic developments and trade. The UN attempts peace talks to stave off Sunni-Shi’a proxy fighting. Brazilian GDP report expected to show economic slip. Nigerian President Buhari prepares for his inauguration.

Queen’s Speech Sets the UK Legislative Agenda

On Wednesday, Queen Elizabeth II will officially offer the State Opening of Parliament, during which David Cameron’s newly strengthened Conservative majority will deliver the set of principles and priorities the Government will pursue over the next 5 years.

Several hot button issues are likely to be addressed. PM Cameron has indicated that the Speech will include a bill to crack down on immigration, to make “Britain a less attractive place to come and work illegally.”

Cameron is also likely to double down on austerity measures in the UK to ensure the investment viability of Britain is secure, as well as fulfill a campaign pledge to eliminate the deficit by 2018.

These expected measures have already drawn an unprecedented negative response from trade unions, but huge losses by Labour and Liberal Democrats have severely blunted Conservative cost-cutting initiatives.

In another move surely to anger the 50 new Scottish National MPs, the Speech will likely provide greater detail to the likely EU in/out referendum Cameron promised voters.

The speech will also likely include a number of lower-level, but still important, initiatives: a counter-terrorism bill that drew opposition from the Liberal Democrats, further devolution in Scotland, and extending the Right to Buy housing scheme.

G7 Finance Ministers and Central Bankers Meet to Discuss Trade and Growth

On Wednesday, the G7 will meet for a 3-day conference in Dresden, Germany to discuss macroeconomic developments and trade.

Following the May 12 meeting of G7 energy ministers, the central bank presidents and finance ministers of the United States, United Kingdom, Italy, Germany, France, Japan, and Canada (as well as EU representatives) will discuss trade policy, growth, economic policy, and global finance.

It will then offer a press release on Friday following the conclusion of the meetings. The seven nations will have many issues to discuss, including the ongoing Greek debt crisis (which has become increasingly worrisome to Eurozone states.

The ongoing trade negotiations among the 7 countries in the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership also appear to be faltering (the TPP countries recently delayed a ministerial meeting in Guam due to delays in the U.S. Senate freezing of trade promotion authority).

The ministers and central bankers will likely also discuss the ongoing situation in Ukraine, which led to the exclusion of Russia from the group (formerly G8) last year, particularly given the upcoming June 7-8 G7 Leaders’ Summit in Elmau.

Yemen Peace Talks to Attempt an End to a Sunni-Shia Proxy War

A UN official has confirmed that peace talks are set to commence in Geneva between Sunni-backed ousted President Abdurabuh Hadi and Shiite-backed Houthi rebels.

Although Houthi leader Abdul-Malek al-Houthi announced his support for the peace talks to end the shelling of Sanaa, it is uncertain at this point whether or not President Hadi will attend; Yemeni Foreign Minister Riad Yassin indicated that the government-in-exile may not participate, which would significantly hamper peace talks.

A previous UN-led talk in Riyadh was called off following boycotts from the Houthis, and the Saudi-led airstrikes against the Shiite rebels has effectively created a proxy war between the Sunni Gulf states and Shi’a Iran in one of the world’s poorest countries.

The Sunni states, particularly Saudi Arabia, are also concerned regarding commitments from the United States that it will maintain its close ties to the Gulf States as it simultaneously seeks to seal a nuclear accord with Iran.

The Saudi king recently snubbed the U.S. at President Obama’s Camp David summit, though the Obama Administration’s recent suggestion that it might elevate the Gulf States to U.S. designation as Major Non-NATO Allies could mend fences.

Announcement of Brazil GDP Figures Likely to Show Decline

On Friday, the Brazilian government will release figures for GDP growth rates for the first quarter of 2015.

Many analysts expect a contraction this year (with estimates of around 1.2%), and the Rousseff Administration has its work cut out for it to avoid a credit downgrade while controlling inflation has proven to be particularly challenging for South America’s largest economy.

As President Rousseff moves to assure investors that her country is a secure and viable investment environment, she will have to contend with significant economic and geopolitical challenges moving forward.

Although market-oriented Finance Minister Joaquim Levy has been praised by market observers for guiding a strong macroeconomic blueprint to alleviate Brazil’s fiscal pressures, he has received significant and growing pushback from President Rousseff’s Workers’ Party.

Levy’s announcement last Friday that Brazil would cut $23 billion in non-obligatory spending to shore up Brazil’s credit rating adds further credence to the view that Brazil is committed to this new (macroeconomically conservative) path.

In addition, Brazil faces conflicting pressure in the geopolitical realm, with resistance from Argentina and Venezuela to expanding trade liberalization arrangements with the United States and EU through MERCOSUR has limited Brazil’s political and economic clout, particularly as Minister Levy seeks to realign Brazil’s foreign and trade policy toward a more US-friendly arrangement.

Nigerian President to be Inaugurated Amid Economic and Security Challenges

On Friday, Muhammadu Buhari will formally take office as president of Africa’s largest economy.

Buhari, who in April unseated incumbent President Goodluck Jonathan, has vowed to crush Boko Haram Islamist militants and fight corruption.

How Buhari intends to defeat Boko Haram remains to be seen, but what is clear is that the Presidential-elect will face serious military challenges in any attempt to do so.

However, Buhari seems to have the credibility to push the Nigerian army into more effective fighting as a former general and one-time military dictator.

Economic policy tends to stall in the first year of a new President since time is spent restructuring ministries and departments, implying that economic change will remain subdued for much of 2015.

When Buhari does get his economic policies into place, these are expected to share the theme of austerity that his policies had during his predecessor’s administration.

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.

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