Weekly Risk Outlook

Weekly Risk Outlook

Greece begins sending back migrants to Turkey. Peruvians head to the polls. Reserve Bank of Australia reacts to changes in AUD. Netherlands votes on EU-Ukraine agreement.  All in the Weekly Risk Outlook.

Greece begins sending back migrants to Turkey, as EU grapples with a permanent response to crisis

The recently-concluded EU-Turkish refugee deal comes into effect on Monday. Under the rules of the deal, Greece – the first port of entry for most migrants – will be able to send rejected asylum-seekers back to Turkey. Greece is expected to return 750 migrants between Monday and Wednesday alone.

In return, Turkey will be able to send one successful asylum-seeker to be resettled in the EU for every asylum-seeker turned away. There is a cap of 72,000 people in this one-for-one exchange system.

The deal represents the best hope for many EU governments for stemming the tide of refugees. While the EU will also announce possible options for reforming Europe’s asylum system and more evenly distributing migrants later this week, whether any such options will gain traction is doubtful.

Both unfettered immigration and a halt to all asylum-seekers present serious political risks. The EU’s mixed response to the migrant crisis has sparked internal divisions, strengthening Eurosceptic voices and concerns about effectiveness of the bloc.

It has also created domestic backlash against refugees in a number of countries, notably Germany, and given rise to populist parties.

Meanwhile, the EU-Turkey deal has been sharply criticized by the UN and NGOs over legality and human rights concerns, and by some EU member states, such as Austria, over feasibility.

The EU and Turkey have assured the international community that asylum-seekers will not be returned to war-zones and that they will be cared for in Turkey. But if the fears of NGOs are proven correct, the humanitarian outcry and criticism will be enormous, further putting pressure on the EU.


Peruvians head to the polls following electoral controversy

On Sunday, Peruvians will vote in the country’s general elections following several dramatic turns in the political process.

Peru’s electoral tribunal, which has taken on a more active role to impose electoral integrity, controversially banned two of the biggest candidates from running just one month before voters were set to head to the polls. This was met with international criticism, including from Organization of American States head Luis Almagro, who voiced concerns that the elections may become “semi-democratic”.

One of the banned candidates – Julio Guzmán from the Todos Por el Perú party – was banned over a technical error in the registration process of his candidacy. He was seen as the strongest contender to Ms. Fujimori, the right-wing populist candidate from Fuerza Popular and daughter of former President Alberto Fujimori – a highly divisive leader who is currently serving a 25-year prison sentence on charges of human rights violations.

Unless Ms. Fujimori achieves an outright majority in the first round (unlikely according to the polls), many predict the second round will be between her and Pedro Pablo Kuczynski of the conservative PPK party.

However, the leftist candidate 35-year old Veronika Mendoza has seen her popularity surge over the past week, and she may take over second place from the PKK. She has campaigned for sweeping reforms in Peru that target the business elite, including drafting a new constitution.

Reserve Bank of Australia reacts to changes in AUD

On Tuesday, the Reserve Bank of Australia will issue its interest rate statement, which many expect to remain stable. But RBA governor Glenn Stevens is under pressure to address worries of a surging Australian dollar (AUD).

Following steady declines for much of 2015, the AUD has undergone a meteoric rise in March, appreciating by 7%. This was reinforced by the US Fed’s recent dovish stance on its own interest rate policy.

Current RBA rates are at a record low of  2%, with the latest cut occurring in May 2015. Investors are heavily anticipating a rate cut in 2016 (or even a double cut), the only question is when. With a stronger AUD, which hampers below-target inflation (currently at 1,7%), the cut could come sooner rather than later.

But a number of data sets point towards a stable interest rate. Though exports are expected to rebound only modestly, commodity prices have gone up, Q4’15 GDP figures were healthy, and super-low European and Japanese interest rates have boosted investment in Australia.

Furthermore, Australian Private Sector Credit increased unexpectedly in February, also giving the RBA space to delay a rate cut. Finally, many believe the US Fed will be forced to tighten its own policy eventually, which along with China’s deceleration will help ease demand for the AUD.


Netherlands votes on EU-Ukraine agreement, with vote doubling as a referendum on the EU and Russia

The Dutch head to the polls on Wednesday to vote on the EU Association Agreement with Ukraine. The agreement seeks to draw Ukraine out of Russia’s sphere of influence by removing trade barriers with the EU and integrating Ukraine into the EU’s internal market.

The Dutch parliament voted in support of the agreement, but after a popular petition against the notion gained 450,000 signatures, the agreement will now come up for a vote before the Dutch public. Polls currently indicate ‘no’ being in the lead.

Popular referenda are not legally binding, but in the case of a ‘no’ vote, the agreement would most likely be sent back to parliament, putting the Dutch government in a tight spot domestically and in the EU.

The vote has strong geopolitical implications. Doubling as a vote on the Dutch attitude towards the EU and expansionism, opponents argue that an agreement may entangle the EU in the Russia-Ukraine conflict.

A ‘no’ vote will embolden the Euro-skeptic camp in the Netherlands and other EU countries (including in the UK on the eve of the Brexit vote) at a time when the EU is facing multiple crises and direly needs unity. It may also lead to a rise in popular referendum in the EU, carrying strong political risks.

The vote is also being seen as a referendum on Dutch views on Russia, with a ‘no’ result dealing a short-term propaganda victory to Putin and potentially a long-term deterrent to EU agreements with Ukraine, a result which would keep Ukraine in Russia’s orbit.


The US Federal Reserve releases March meeting minutes as investors expect insight into the next interest rate hike

On Wednesday, the US Federal Reserve will release the minutes from its mid-March meetin,g at which the central bank made the decision not to raise interest rates.

However, the Federal Reserve did suggest that another rate hike could come later this year. Investors and analysts alike will look out for any language that could provide insight into when that next interest rate hike could happen.

At the onset of 2016, Federal Reserve Chairwoman Janet Yellen indicated that the central bank would aim to raise rates four times this year depending on the data. Given this decision not to raise interest rates, the minutes of the meeting will shed light on what data points the Federal Open Market Committee focused on to lead to this decision, which will help investors forecast rate hikes in the future.

Specifically, the biggest factors are China’s economic slowdown, which remains a big risk for global growth, global financial market volatility, which is leaving the US Central Bankers uneasy, and lastly the uncertainty surrounding the inflation rates.

Back in December, the Fed forecasted a 2 percent inflation rate. If the inflation rate is slower to reach that target, the rate of hikes will likely slow accordingly.


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.

This Weekly Risk Outlook was written by GRI analysts Karl Sorri, Laura Engshuber, and Sam Cho.

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