U.S. presidential campaigns diverge. South Africa’s politics in flux. Japanese growth in question. Britain releases inflation growth. Spanish political stalemate ends. All in The Week Ahead.
U.S. presidential campaigns diverge
On Monday, former Secretary of State Hillary Clinton will begin the week campaigning for the presidency on economic issues with Vice President Joe Biden in Biden’s hometown of Scranton, Pennsylvania. Meanwhile, on the other side of the eastern seaboard, Republican presidential candidate Donald Trump will begin fighting a lawsuit in Florida over accusations that his Florida golf club had denied refunds to members who had left the club.
This will likely begin another week where the Democratic Party’s candidate slowly and persistently engages in the traditional mechanics of electioneering – campaigning in swing states with high-powered and popular surrogates, gaining local news coverage and traditional fundraising activities – while the Republican candidate engages in increasingly unconventional tactics and actions.
This week will begin an attempt by the Trump campaign to resuscitate itself after last week was consumed by his comments that “Second Amendment people” could “do something” about Hillary Clinton either becoming president or selecting liberal justices to the Supreme Court, as well as comments that President Obama was the “founder” of ISIS and Secretary Clinton was the “MVP” for the terrorist organization.
Mr. Trump’s campaign also appears to be losing ground across traditional battleground states like Colorado, Florida, New Hampshire, and Ohio, while his campaign is also suffering blows in conservative states like Arizona, Georgia, Utah, South Carolina, and Kansas. It would take a significant shift in the campaign to right the Electoral College gap that has emerged from his campaign, though none appears to be forthcoming.
South Africa’s ANC ponders electoral shift following elections
This week, the African National Congress (ANC), which has led South Africa since the end of apartheid, is likely to consider further the implications of failing to secure majority control of 4 of the 8 largest municipalities in the country: Nelson Mandela Bay, Johannesburg, Ekurhuleni, and Tshwane, the municipality that includes Pretoria.
The largest party to emerge in opposition, the Democratic Alliance (DA), has gained significantly in all cities as corruption and the unpopularity of ANC President Jacob Zuma has taken a toll on South Africa’s ruling party. This does not necessarily mean that the ANC’s weaknesses will lead to the DA strengthening enough to challenge the ANC sufficiently in the 2019 general elections.
This is in part due to the fact that of the 4 major municipalities where the ANC does not command a majority, the DA does not itself command a majority in three of those municipalities. In Nelson Mandela Bay, the DA is 4 seats from a majority and will have to work with smaller parties, just like in Pretoria. The large minor party that has emerged to work with the DA – in some places, though not all – is the Economic Freedom Fighters.
However, these groups oppose one another both in policy preference and style. The DA is broadly centrist/center-right and has tried to place itself between a more state-driven model of development and “free market fundamentalists.” The EFF, in contrast, lies much further to the left, and has adopted more revolutionary rhetoric.
These two groups will need to work together to form a cohesive, anti-ANC and anti-Zuma coalition, which may be difficult given that the EFF has indicated it will “have to discover whether [the DA] can rise above their racially supremacist egos, and when they can allow themselves to be educated by us.” Without a strong and united front, it would be very difficult to successfully contest the ANC in future elections.
Japanese growth slows despite Central Bank’s best efforts
On Monday, the Japanese government released data for economic growth in the second quarter of the year, noting that the Japanese economy grew at an annualized rate of 0.2% over the 3-month period. Many forecasts had indicated that growth would be slow, due in large part to persistently weak private consumption.
The Bank of Japan has limited options as interest rates (which are effectively at 0%) and previous stimulus efforts do not appear to have allowed the Japanese economy to break out of its low growth cycle.
Prime Minister Shinzo Abe’s responded earlier this month to flagging growth with a $132 billion measure to both provide cash payouts to lower-income citizens and boost infrastructure investment. However, this package may not actually boost spending significantly (if both lower-income recipients of stimulus funds and infrastructure workers save these funds rather than spend them).
One Bloomberg report has indicated that previous “stimulus” efforts should probably be viewed more through the lens of traditional deficit spending rather than a short Keynesian burst of spending to boost growth. Additionally, Japanese employment is extremely high (73%), making it unlikely that a significant number of people are searching for jobs that will be boosted by these new measures.
Britain releases inflation figures with Brexit impact
On Tuesday, the Bank of England will release its June report on consumer price growth. The Bank has forecast that the falling value of the pound against major world currencies would increase costs for imports, subsequently increasing in pounds the the cost of imported goods purchased domestically.
Although this may help the UK economy reach a 2% inflation rate, this is usually only useful for longer term growth when a number of conditions are met: 1) consumer spending does not subsequently fall, 2) wages rise (otherwise stagflation will occur), 3) businesses invest both in jobs and innovation, and 4) the government effectively responds if any of these conditions do not occur.
However, there are many indications that the uncertainties revolving around Brexit – including, importantly, when negotiations even begin – could reduce investment as businesses cannot be certain what the British relationship with the EU will be in terms of investments, trade, and services. Additionally, if businesses act cautiously, they are less likely to expand operations and hire more workers which could reduce consumer spending.
This means the government will need to act as a major equalizing force as the economy struggles. British policymakers will likely have significantly more power to guide the UK economy than the business or consumer sectors so long as Brexit uncertainty remains the driving market concern.
Spanish political stalemate slowly comes to an end
On Wednesday, the executive committee of the Spanish People’s Party (PP) will meet and discuss the negotiating position Ciudadanos has offered as its set of conditions on forming a coalition government with the PP.
The set of 6 anti-corruption measures Ciudadanos has introduced include: removing diplomatic immunity for public officeholders and judges, removing from public office anyone under investigation for corruption, removing executive pardons, and altering the current electoral law’s D’Hondt method that Ciudadanos claims unfairly advantages the PP and PSOE.
The PP may be skeptical on some of these measures, but given the reluctance of Prime Minister Rajoy and other PP lawmakers to hold yet another election, they may have limited options. Even in the event that Ciudadanos does sign on, though, the two parties would not have sufficient votes in the chamber for a majority.
The PP’s 137 seats and Ciudadanos’ 32 seats still puts the two parties 6 seats short of a majority in the 350-seat Congress of Deputies. However, should this coalition ultimately prove successful, it will end a gridlock that has lasted for 7 months in Spain and has jittered both markets and voters.
The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.
The Week Ahead is written by GRI analyst Brian Daigle.
