Weekly Risk Outlook

Weekly Risk Outlook

China and U.S. discuss policy. U.S. primaries come to a close. World Bank releases global growth projections. Brazil’s central bank likely to maintain interest rates. EU home affairs ministers meet to discuss Syria and Turkey. All in the Weekly Risk Outlook.

China and U.S. discuss economics, security and climate

On Monday, the United States and China will meet in Beijing to discuss geopolitical and economic issues. The meetings will include Treasury Secretary Jack Lew and Secretary of State John Kerry. The United States is likely to indicate its frustration with developments in the South China Sea, particularly China’s island-building, which has concerned both the United States as well as countries in the region. Although the United States has remained officially neutral regarding the ownership of the Spratly Islands in the Hague dispute between the Philippines and China, the United States has engaged in a number of freedom of the sea movements through disputed waters, drawing rebukes from the Chinese government.

Other issues to be addressed could include disputes over reported steel dumping from China into foreign markets, which has raised significant concerns and prompted a number of U.S. senators to call for retaliation and has altered the presidential campaign.  Finally, concurrent with the economic and security talks, U.S. government officials will meet with their Chinese counterparts in the U.S.-China Climate Forum. Both countries have significant incentives to cooperate further on meeting emissions targets; China in particular has seen growing pressure from citizens, particularly city-dwellers, to reduce smog and air pollution.


U.S. primaries come to a close

On Tuesday, the states of New Mexico, New Jersey, Montana, North and South Dakota, and California will cast their ballots for primary presidential candidates. The District of Columbia will be the last to vote next Tuesday, though its small delegate count makes it very unlikely that that election will be decisive. On the Republican side, Donald Trump’s clinching of the nomination last month makes the Republican primaries a moot point. On the Democratic side, both Senator Sanders and Secretary Clinton are vying for what will practically speaking be a moral victory. Counting both pledged and unpledged delegates, Secretary Clinton is on the cusp of securing the necessary 2,383 delegates to ensure a majority for her nomination.

Following the primaries, it is very likely that the Democratic Party elites will quickly converge around Secretary Clinton, with President Obama, Vice President Biden, and Senator Elizabeth Warren endorsing and beginning to campaign for Secretary Clinton. This will also effectively end the advantage Donald Trump has received in recent polling from a divided Democratic Party following his unexpected, swift consolidation of Republican general election voters.

This will also mark a key shift in the direction of the campaign season; with both parties firmly secure in their nominees, attention will turn not only to the matchup between Clinton and Trump, but also to major down-ballot races. For example, the Senate races in key swing states will get far more press coverage, as will the governor’s races in Missouri and North Carolina, and a handful of high-profile, swing Congressional races.


World Bank releases global growth projections

On Tuesday, the World Bank will release its Global Economic Prospects 2016 report, which will update its January projections of 2.9% global growth. It will follow the OECD’s report last week that reduced its own global economic impact and called for greater mobilization of government resources to resolve an economically stagnating planet.

While the World Bank has yet to indicate its own position ahead of the report, it appears likely that the report will note a trend that has persisted among other international economic organizations as 2016 has progressed: a growing concern at further stagnating growth, driven in part by political difficulties from Beijing to Lima. OECD chief economist Catherine Mann summed up the message of the OECD report, likely to be echoed by the World Bank’s report, by noting “the longer the global economy remains in the low-growth trap, the more difficult it will be to break the negative feedback loops.”

Additionally, it is possible that the World Bank report could have spillover effects, depending on what it says about key countries. The OECD report drew the contempt of the new Brazilian President Michel Temer, who, following the report’s indication that Brazil’s recession will likely extend to 2017, dismissed the report as being “nonsense” and “unsophisticated.”

Brazil’s central bank likely to maintain interest rates in time of political flux

On Wednesday, the Central Bank of Brazil is expected to maintain its interest rate at the near-decade high of 14.25%. There are likely multiple reasons for the stay-the-course action from the central bank, but one of the most significant is undoubtedly the shift in political power from the Rousseff administration to the PMDB-led Michel Temer administration.

This transition, and the first few weeks of President Temer’s administration, has not been a smooth one. As noted last week, the composition of President Temer’s cabinet has reduced voter confidence, and recent revelations that one of President Temer’s key advisors may have tried to orchestrate a behind-the-scenes effort to remove President Rousseff and stymie the Petrobras investigation have only further incentivized Rousseff’s Workers Party to maintain their opposition to the interim administration.  It is increasingly uncertain whether President Temer will be able to advance his reform agenda, particularly given that Congress is wrangling over the timing of President Rousseff’s trial, the Zika outbreak has taken over significant attention from the national and international media, and the Rio Olympics continue to get major scrutiny.

EU home affairs ministers meet to discuss Syrian refugees and Turkish visa liberalization

On Thursday, the home ministers of the European Union will meet in Luxembourg for a two-day discussion of the Syrian refugee crisis. The Syrian refugee crisis has been a grinding process of mixed signals and shifting priorities.

The recent deal agreed between Turkey and the EU in which Turkey would accept Syrian refugees in the EU as a “safe country” for refugees has come under withering criticism from human rights groups as likely to violate refugees’ human rights. Additionally, a recent case of an LGBT refugee in Greece who feared for his life if compelled to return to Turkey could potentially become a watershed moment for the refugee agreement. Additionally, Amnesty International has recently indicated its opinion that the agreement itself is illegal as child labor and subsistence living are likely if refugees are sent to the overburdened Turkish system.

The home ministers are also expected to discuss the Turkey visa liberalization plan. A previous tentative plan to liberalize Turkey’s visa process by mid-June appears likely to be pushed back amid concerns that Turkey has not gone through the extensive steps necessary to accede to the visa liberalization protocol. The bigger political question likely to be discussed at the meeting is whether or how Turkey not getting the visa liberalization measures it had expected will affect its ability and willingness to carry out the Turkey-EU refugee deal.


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 analyst Brian Daigle.

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