Weekly Risk Outlook

Weekly Risk Outlook

European Parliament votes on TTIP Resolution. China releases economic reports. Major moves in Argentina forecast tumultuous election cycle. U.S. Senate prepares for NDAA vote. Confusion over TPA leads to tense negotiations for TPP. All in this Weekly Risk Outlook. 

European Parliament to Vote on TTIP Resolution

This week, the European Parliament will debate and vote on the Transatlantic Trade and Investment Partnership (TTIP). While the EU-US trade agreement has been set back on numerous occasions (most recently because of 898 proposed amendments from MEPs) the Investor State Dispute Settlement (ISDS) mechanism has been the most significant blockage to progress.

The ISDS allows companies to sue foreign governments and seek compensation for claims of unequal treatment.

The European Commission recently proposed to amend ISDS to change the current system of ad hoc arbitration to that of an international investment court with permanent arbitrators.

However, the language of the Commission’s amendment is too vague, so that it will likely fail when the European parliament votes on it on June 10th.

Though the heaviest opposition to TTIP in the European Parliament comes from communist and left-wing parties, they will not have the votes to defeat TTIP, holding 52 out of 751 seats in Parliament.

The U.S. is expected to make a decision on similar legislation in coming weeks.

China to Release Economic Reports

This week, China will publish reports for the month of May on its trade balance and Consumer Price Index – or CPI – on Tuesday, and its industrial production and retail sales on Thursday.

Sales are expected to have dropped by 0.4% from April, while production is forecast to have grown by 6.6%, up from a growth of 5.9% in April.

China’s GDP, which experienced slow growth in its first quarter and in April was at its lowest point in 6 years, is expected to come in at a 2.7% annualized rate.

Economists noted that the April number was still better than many had expected, though a rise in CPI indicates inflation will have increased from 1.5% to 1.6%.

Exports and imports, which are reported to have declined heavily in May, are unlikely to improve in the near future due to lack of external and domestic demand.

Overall, the numbers indicate a stabilization of the economy, with a recovery of the GDP expected in June. However, the fall in trade, particularly in imports, will likely have ripple effects across both the developed and developing worlds.

In Latin America, for example, the recent visit by Premier Wen Jiabao to Colombia, Brazil, and Chile, and new Chinese investments that followed were heralded as a move to strengthen economic ties.

However, many of the projects these investments would support appear to be designed to entrench the commodity export-driven markets of the Southern Cone, which tend to hurt the most from swift falls in Chinese imports.

First Major Election Moves in Argentina Forecast Tumultuous Election Cycle

On Thursday, political parties contesting the Presidency of Argentina, a post to be vacated by incumbent Christina Fernandez de Kirchner in December, are required to submit their electoral alliances.

Although the Kirchner Peronist movement Frente para la Victoria (FpV) and the centrist/center-right Propuesta Republicana (PRO) are firmly committed to their alliances, speculation has swirled around the position of rival dissident Peronist Frente Renovador (FR).

The question seems especially important given the flagging electoral prospects of the presumptive candidate for FR, former Chief of the Nestor Kirchner Cabinet of Ministers Sergio Massa.

Massa’s camp has reached out to the PRO camp, and the likely PRO coalition candidate Buenos Aires City Mayor Mauricio Macri, about forming a grand anti-Kirchnerist coalition, a move that Macri has publically opposed.

Recent suggestions that Massa would bow out of the presidential race and run for a governorship (with support from Macri and the RF running under the PRO coalition) were effectively snuffed out last week, when Macri again threw his support to PRO affiliate Maria Vidal.

Heading into the June 10 registration, the position of the FR will become much clearer.

The successor to President Fernandez de Kirchner has a number of important policy choices to make that could reshape Argentina’s struggling economy: how to reduce inflation, how to resolve the ongoing dispute with U.S. bondholders (“vultures”), and Argentina’s position with China and the United States all stand at a clear pivot point come December.

Senate to Vote on National Defense Authorization Act, Democrats May Filibuster

On Tuesday, the U.S. Senate is expected to consider FY 2016 appropriations for the United States’ large armed forces and other military spending measures.

The House has already passed legislation (HR 1735), but as of last Thursday Senators have proposed over 380 amendments to the bill.

The crux of opposition from Senate Democrats comes from a controversial $38 billion shift of the Pentagon’s budget to the Overseas Contingency Operations (OCO) account. This shift in funding is designed to effectively allow the Pentagon to exceed its budget caps imposed by the sequestration measures passed by Congress in 2011 under the Budget Control Act, as the OCO is not subject to sequestration caps.

Democrats are furious with what they describe as a “gimmick” to go around budget caps that were only agreed in the first place from Republican pressure in 2011 to slash spending.

Although the $612 billion NDAA bill has been described as must-pass legislation, and has enjoyed bipartisan support for over 50 years, President Obama has threatened to veto the bill, in part because the White House had wished to break the budget caps imposed by sequestration in both domestic and defense spending (and the bill effectively breaks the defense cap but not domestic ones).

Senate Minority Leader Harry Reid has stated that the current bill as written “has no chance of becoming law.”

Subject to a significant shift in the OCO spending measure, Democrats will likely attempt to filibuster the bill this week.

Confusion Over TPA Leads to Tense Negotiations for TPP

The U.S. House of Representatives may vote on the Senate-passed Trade Promotion Authority (TPA) bill that President Obama needs for the United States to conclude the Trans-Pacific Partnership negotiations this week.

Or it may not.

The uncertainty surrounding passage of the TPA in the House has repeatedly scuttled the conclusion of the 12-nation Trans-Pacific Partnership, which is slated to cover nearly every industry and sector and 40% of the world’s economy (agriculture, automotive, pharmaceutical, intellectual property, labor and environmental regulations, commodities, and healthcare products, to name a few).

The repeated delays of the TPA vote in the House is perhaps not surprising to those plugged into trade politic;: the 2002 vote to grant President Bush similar authority passed by only 1 vote, thanks in part to a handful of pro-free trade Democrats swinging the balance in favor.

The House Republicans’ lack of a definitive timeline has convinced many that they are still working to shore up votes, and will likely have to lean on Democrats to pass legislation that is supported much more by the Republican Party than the Democratic Party (the TPP is strongly opposed by most labor and environmental groups).

However, many Democrats have pushed back at the notion that they should have to provide votes when the Republican Party carries a 30+ seat majority in the lower house for a bill that requires only a simple majority.  Nevertheless, it is likely that the trade promotion authority bill will pass the House and be signed into law by President Obama.

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.


About Author