The Week Ahead: 26 November – 2 December

The Week Ahead: 26 November – 2 December

South Korea interest rate decision. OPEC meets in Austria to discuss extending production cuts. Irish question may derail British Brexit plans. Senate considers tax bill that would also change healthcare. All in The Week Ahead. 

South Korea interest rate decision

  • On Thursday, South Korea’s central bank will issue its interest rate decision for the month, with rates expected to be maintained at 1.25% – a rate it has held since June 2016.
  • More interesting for markets will be remarks from Bank of Korea governor Lee Ju-yeol on the state of the Korean economy and a short term assessment of the future of the Korean economy. Several pieces of good economic news have come to South Korea over the last six months: in October the Bank estimated growth had expanded 1.4% quarter-on-quarter from July-August 2016 to 2017, in excess of growth forecasts by economists.
  • Growth was buoyed by a 6.1% surge in exports of semiconductors and vehicles, and the government in July raised its growth forecast to 3% for 2017.
  • This has led to the government shifting its policy to increase spending to boost jobs and construction. President Moon Jae-in has also indicated a shift in South Korea’s regulatory framework to reduce the power of Korea’s family-led “chaebol” companies.

GRI take: A strong economy underpinned by substantial export growth could make reforms easier and with inflation actually falling over the course of this year, now hovering around 1.6%, inflationary pressures do not appear likely in the short term.

OPEC meets in Austria to discuss extending production cuts as Russia expresses skepticism

  • On Thursday, member states of the Organization for Petroleum Exporting Countries (OPEC) will meet in Vienna to discuss their current production cuts, currently slated to last until March 2018 with the goal to maintain market share.
  • A previous deal to cut 1.8 million barrels of daily production will be maintained throughout 2018, and current projections expect the current output cut to be extended to some point in 2018, though estimates vary from mid-2018 to October to the end of the year.
  • All OPEC states maintain varying degrees of dependence on oil revenues, leading to a balance of concerns between revenue flows and keeping market share against U.S. shale oil producers.

GRI take: One of the key non-OPEC countries vital to keeping production cuts stable, Russia, has become ambivalent about extending cuts for too long. President Putin has supported an October 2018 deadline, though Russia’s economy minister indicated that Russian economic growth was hampered. However, with oil prices at around 63 USD a barrel and Russian economic estimates placing oil prices at 40 USD a barrel, there is probably enough room for Russia to operate throughout the next year with the continued production cuts.

Irish question may derail British Brexit plans

  • The Irish government, in particular Taoiseach Leo Varadkar, is threatening to block trade agreement talks that are due to start alongside Brexit negotiations, at the upcoming mid-December EU summit.
  • The threat was precipitated by the British government’s failure to take into account Northern Ireland’s position and reassure the one EU country likely to be hardest hit by Brexit. The introductions of border checks for passports and goods crossing from Northern Ireland to the Republic and back will likely lead to a slowdown in trade between the two, and could damage the Good Friday Agreement.
  • In a response that is very unlikely to satisfy the Irish government, the UK international trade secretary Liam Fox indicated that the Irish question will not be settled until after an EU-UK deal has been reached. This tone-deaf response is of course likely to anger the Irish government, which could veto moving forward on this response alone. But the EU as a whole had already indicated that resolving the Irish question is one of the three key pillars of moving forward to trade talks.

GRI take: The response from Fox indicates the British government will struggle on even the most basic questions of Brexit negotiations, making a “crash out” scenario where no deal is reached much more likely.  The EU has provided the UK government with a December 4 deadline to come up with satisfactory responses to the border issue, the Brexit divorce bill, and EU citizen rights before moving forward. With no significant response on the border, divorce bill proposals consistently far below EU proposals, and EU citizen rights suggested as a bargaining chip, it seems unlikely the UK government will meet its obligations.

Senate considers tax bill that would also change healthcare

  • This week, the U.S. Senate is slated to consider legislation to permanently reduce corporate tax rates to 20% from their current 35% level and temporarily reduce personal tax rates for some by collapsing the number of tax brackets and the expansion of some tax deductions.
  • Other deductions will be eliminated, leading to several studies estimating that upwards of half of American taxpayers will ultimately pay more in taxes by 2027. The Senate currently has 52 Republican members and will need 50 votes to pass the bill. Republican Senator Ron Johnson became an unexpected “No” vote last week, but an amendment to a pass-through tax structure could flip his vote.
  • Several other senators who have bucked the party in past important votes for a variety of reasons, including Collins, Murkowski, McCain, Flake, and Corker, have been relatively silent on whether they support the bill.

GRI take: Some senators have suggested passing a bipartisan reform to stabilize health insurance markets before the tax bill to ameliorate concerns that repealing the individual mandate would wreak havoc on the insurance market, so it is possible Senate majority leader McConnell will use the Murray-Alexander bill to convince wavering moderates to sign on to the bill. Other concerns, particularly that the bill will reduce revenue after 10 years, making it impossible to be voted on in the reconciliation process, have not yet been addressed.

Stay ahead of the news cycle with GRI. Drawing on expert knowledge and local sources, The Week Ahead provides analytical foresight on the consequences of key upcoming political developments.
This edition of The Week Ahead was produced by GRI Senior Analyst Brian Daigle and Senior Editor Luke Iott.


About Author

Brian Daigle

Brian is an energy and Latin America researcher at a political consulting firm in Washington, D.C. He is a London School of Economics (LSE) graduate in political science and political economy, where he focused on trade and transatlantic relations. Brian received his dual BA in political science and history at the University of California-San Diego.