Weekly Risk Outlook

Weekly Risk Outlook

ASEAN Summit in California. Fed bankers speak. Brussels Summit covers Brexit and refugees. Uganda’s elections to continue decades of rule. U.S. campaigns heat up. All in the Weekly Risk Outlook.

ASEAN Summit in California serves as opportunity to strengthen ties with U.S.

Today, President Obama will greet the leaders of the 10 member states of the Association of Southeast Asian Nations (ASEAN) to discuss deepening relations between the United States and the ASEAN community.

The discussions are likely to include both economic as well as diplomatic dimensions as both the United States and China vie for influence in the region.

In economics, trade policy has become an increasingly important economic and political lever in the region.

The Trans-Pacific Partnership, which includes the ASEAN states of Brunei, Malaysia, Singapore, and Vietnam (and may eventually include other ASEAN members like the Philippines, Indonesia, and Thailand), has been the key economic component of President Obama’s shift to Asia.

Alternatively, the Regional Comprehensive Economic Partnership (RCEP), led by China and including all ASEAN countries (as well as Japan, India, South Korea, and Australia), may emerge as another major economic program in the region (which does not include the United States).

RCEP negotiations are ongoing; it is uncertain at this point how deep the trade agreement will go. This makes it difficult to determine the value of the agreement in bringing ASEAN countries significantly closer to China economically.

It also remains to be seen how strong ASEAN will become as a cohesive negotiating unit, which President Obama and U.S. officials may try to gauge in the California meeting.

Although the organization has moved to liberalize the movement of some professionals and institute visa-free travel amongst ASEAN states, the significant divisions in both the economic development as well as political structures of the ten ASEAN states make this more difficult in the years ahead.

The European Community, which is frequently looked to as a potential model for further ASEAN integration, consisted of member states with far more aligned levels of economic and political development (particularly in the early stages).


Federal Reserve bankers speak following market jitters

Throughout the week, several Federal Reserve bank presidents will deliver economic forecasts and speeches regarding the health of the U.S. economy and banking system.

Speakers will include the presidents of the Federal Reserve banks of Philadelphia, Minneapolis, Boston, St Louis, and San Francisco.

Following last week’s historic move by the Central Bank of Japan to lower interest rates into negative territory for the first time, and Sweden’s Riksbank further moving its interest rate to -0.5%, despite a growing economy and productivity advances, a number of economic outlets have questioned whether the central banks of the world have reached the limits of their abilities to help boost growth and inflation.

Federal Reserve Chair Janet Yellen’s comments last week at the House Financial Services Committee that the Federal Reserve had no inherent legal barriers to putting interest rates below 0% (though Yellen followed this remark by indicating she did not foresee the Federal Reserve acting in such a way) has not been fully digested by markets yet.

However, a concern has arisen among stock markets across the globe that central banks’ QE policies (particularly in developed economies like the US, Japan, and Europe) have reached their limits in what they can do to boost prices and growth.

The fall in Japan’s stock market and rise of the yen directly following the Bank of Japan’s announcement, neither of which (especially the latter) would be expected after an announcement like that, adds credence to the theory that market perceptions are beginning to shift to growing skepticism that the actions of central banks will be sufficient in stabilizing a wobbly global economy.

Low oil prices are likely to remain and could continue for several years, which will undercut the ability of central banks in Japan, the EU and US to boost inflation to reasonable levels.

Any further loss of perceived credibility by the markets over central banks’ policy capabilities could add significant pressure on national governments to craft their own growth policies.

But with elections in the United States, the refugee crisis scrambling European politics, and the seeming failure of Prime Minister Abe’s “Abenomics” to deliver in Japan, this avenue to boost growth may also be closed.


2-day Brussels Summit will cover Brexit and refugee crisis

On Thursday, leaders of the 28 EU governments will meet in Brussels to discuss the renegotiation of Britain’s relationship with the European Union, as well as the evolving challenges of the refugee crisis on the European continent.

The Brexit negotiations are likely to revolve around the 4-year “emergency break” proposal advanced by Prime Minister Cameron to halt EU migrants from securing UK benefits soon after arrival to the UK.

This proposal has drawn criticism from several corners of the EU as effectively limiting the free movement of peoples principle that serves as one of the fundamental pillars of the EU.

Additionally, a number of leaders of Eastern European states have highlighted the possible discriminatory impact such a policy could have on their countries’ citizens in the UK.

The Italian minister for European Affairs, Undersecretary Sandro Gozi, indicated his belief that some sort of deal will be struck at this week’s meeting, including the “emergency break” provision. Should a deal be in the offing, a British referendum on whether or not to exit the EU could occur as early as this June.

Early suggestions that it would be in May to coincide with the Scottish, Welsh, Northern Irish, and London parliamentary and local elections have since been rebuffed.

Recent polling has shown a tightening between those who oppose and those who support Brexit, and a wealth of polling data is likely to flourish if and when a final referendum date is announced.

On the refugee front, a number of leaders, and even whole countries, have experienced unexpected setbacks in response to the crisis. The Greek government has been told in no uncertain terms by the EU that it has 3 months to secure its borders (Greece has over a thousand islands and an economy the size of the US state of Connecticut).

Denmark’s government has been criticized for its policy appropriating the jewelry of refugees to pay for their settlement.

Even German Chancellor Angela Merkel has suffered multiple political blows for accepting Syrian refugees to Germany, which even the Cardinal Archbishop of Munich has indicated should probably stop.

Although this meeting may serve as an opportunity to create a more cohesive approach to this situation, nothing fundamental appears to have changed to push countries towards a longer-term solution.


Uganda’s presidential and parliamentary elections likely to show continuation of 3 decades of rule

On Thursday, Ugandans will head to the polls to elect their next president and parliamentary members.

It appears very likely that incumbent President Yoweri Museveni, who has been in power since toppling the government of Milton Obote in 1986, will emerge victorious.

Among the challengers to President Museveni are Kizza Besigye, who has run under the Forum for Democratic Change (FDC) three times against President Museveni and has been a vocal critic of his administration.

In the 2011 elections, both the opposition FDC party as well as EU officials criticized the election for voter fraud and the preventable disenfranchisement of many Ugandan voters.

It remains to be seen whether these election results will receive similar criticism (one sign that fraud may be occurring is if President Museveni is declared the winner closely following the election polls, including specific levels of support).

The Ugandan presidential candidates (besides the incumbent) held the country’s first televised presidential debate last month, indicating that Uganda may be moving closer to a more representative and engaged democracy. Additionally, the Presidential Elections Act, which sets out the terms and qualifications for a person to be elected president, indicates that anyone over the age of 75 is ineligible to run for office.

Given President Museveni’s age (71), he would be unable to run in the next election. Although it is possible that he would be able to strike that provision in order to run again (he previously ensured term limits would be removed to allow him to run multiple times), fiddling with electoral and constitutional law to maintain an elected position has drawn increasing attention across the African continent, notably in Burkina Faso, Rwanda, Burundi (not technically a change in law, but a controversial 3rd term run), and the Republic of the Congo.

President Museveni may secure his reelection bid this Thursday, but it will become increasingly difficult, in the eyes of his own people as well as the global community, to win any further bids beyond this one without growing criticism and possibly instability.


U.S. presidential campaigns heat up as conversation shifts west and south

Both the Republican and Democratic candidates for president have shifted their attention, at least in the short term, to the states of South Carolina and Nevada.

These states are demonstrably different from the first two nominating states, Iowa and Nevada, and as a result the political conversations have begun to move considerably and certain candidates are moving to gain an advantage.

On the Republican side, South Carolina, with its significant population of military veterans and retirees, has led candidates to focus on the military and security issues. This places previous candidates who were ostensibly on offense back to defense; for example, following his successful showing in the Iowa caucuses, Senator Ted Cruz is being attacked by more moderate Republican candidates as displaying a lack of steadfast commitment to the military.

Former Governor Jeb Bush is hoping for momentum to shift to his direction following relatively disappointing election results in Iowa and New Hampshire, and Senator Marco Rubio is looking to recover following a bad debate performance that may have led to his poor New Hampshire showing.

On the Democratic side, much greater attention has been placed on issues that disproportionately impact minority communities. This is due in part because the Democratic caucuses in Nevada and primary in South Carolina will have a strong showing of both African American voters as well as Latino voters.

Although Senator Sanders has largely tried to maintain attention on the influence of money in politics and the negative impact of Wall Street, it can be difficult to tie those issues as effectively to institutional racism, immigration reform, and gun control.

Additionally, former Secretary of State Hillary Clinton unveiled a new slogan to turn Senator Sanders’ singular focus against him: “I am not a single-issue candidate, and I do not believe we live in a single-issue country.”

Whether this works in South Carolina or Nevada, where Secretary Clinton has maintained strong polling leads, remains to be seen in the week 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 was written by GRI analyst Brian Daigle.

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