Coming in Our January 2017 Reports
PRS’s coverage of the Americas this month includes an update on Peru, where the challenges posed by President Pedro Pablo Kuczynski’s very weak legislative position have been compounded by a slump in his popularity, the result of corruption scandals and the government’s indecisive response to protests by indigenous groups that have impeded mining projects seen as crucial to spurring an economic revival. The administration’s weakness was highlighted in December, when Prime Minister Fernando Zavala failed to prevent Congress from ousting Education Minister Jaime Saavedra in a vote widely interpreted as a show of force by Keiko Fujimori’s Popular Force, which controls a majority of legislative seats.
The update will include a recap of the measures the government has managed to implement under temporary decree powers granted to Kuczynski last fall, which the president has promised will boost real GDP growth to 4.5%–5% in 2017, and assess the government’s prospects for achieving its remaining legislative objectives. In that vein, PRS will examine the political options available to Kuczynski, and what each implies for the investment climate and Peru’s economic fortunes over the next five years.
Turning to the Middle East and North Africa, PRS will issue a new report on Egypt, where the government has negotiated a $12 billion loan deal with the IMF that has kept a currency crisis in abeyance, but commits the government headed by President Abdel Fatah al-Sisi to implement unpopular reforms that are essential to reducing the country’s heavy dependence on external financing. Our analysis will include an assessment of the government’s chances of securing legislative approval of the reform agenda and of implementing follow-up measures required to promote economic growth and establish a basis for longer-term economic stability.
The report will also examine the prospects for an improvement in security conditions, which has thus far remained elusive, to the detriment of the economically important tourism industry, and to the growing dismay of Egyptians who have tolerated heavy restrictions on political freedoms as a necessary cost of the battle against violent extremism.
This month’s coverage of Western Europe includes a revised report on Spain, which remained one of the EU’s economic success stories in 2016. However, the inconclusive results of two general elections held in the space of six months prevented aggressive action on structural reforms aimed at addressing the country’s lingering fiscal imbalances and spurring the creation of jobs for some one-fifth of the work force that remains unemployed, and the economic revival is largely attributable to a boom in the tourism industry that would be difficult to sustain if the country is targeted for a terrorist attack.
The updated analysis of risk for investors will focus on the legislative handicap posed by the minority status of Prime Minister Mariano Rajoy’s government, and what that portends in terms of the potential for a renewed political crisis in the near term. In that context, the report will assess the potential for strikes and social unrest as the return of inflation erodes the disposable income of households and the government’s prospects for achieving its fiscal targets with economic growth slowing and a consensus on austerity lacking. PRS will also examine the vulnerability of Spain’s financial services sector in light of the troubles brewing in Italy and Portugal, and discuss the implications for Spanish banks of the unexpected European Court of Justice ruling on excess interest payments on variable-rate mortgages.
The regional coverage also includes a detailed update on Switzerland that will examine how the government plans to implement immigration restrictions approved in a referendum held in 2014, and how this will affect relations among the parties in the ideologically diverse governing coalition and the country’s relationship with the EU, which is defined by numerous bilateral accords that could be nullified if the immigration curbs are enforced. The report will also examine what the approaching end of the era of banking secrecy will mean for Switzerland’s investment profile and the economy. On that latter note, PRS will provide forecasts of key macro-indicators, and a forward-looking assessment of how fiscal and monetary policies will pan out in 2017, and how this might affect the currency now that the Swiss franc’s exchange rate ceiling vis-à-vis the euro has been abandoned.
This month’s coverage of Eastern Europe includes a fully revised report on Romania, where the Social Democratic Party (PSD) won a convincing victory at a parliamentary election held on December 11, and has partnered with the much smaller Alliance of Liberals and Democrats (ALDE) to form a government that will claim a 10-seat majority in the lower house and an eight-seat majority in the Senate. The potential for disruptive turf battles between Prime Minister-elect Sorin Grindeanu and President Klaus Iohannis poses the biggest near-term threat to political stability, with the potential for yet another high-level corruption scandal of the sort that has plagued the PSD over the last 15 years also posing a risk.
Our report will assess the policy outlook under the new government, particularly with regard to the prospects for progress in addressing key deterrents to investment, which include barriers to obtaining financing, bureaucratic obstacles, and a lack of tax incentives. PRS will also assess the political and economic implications of the incoming government’s campaign pledges to boost spending on wages, social benefits, and infrastructure investment, which will put a floor under an anticipated slowdown from last year’s estimated 4.8% pace of expansion, but carries a risk of pushing the general government budget deficit above the 3% of GDP ceiling permitted by the EU.
Our coverage of Asia this month features a revised report on China that will examine what is in store for investors in Chinese assets. We look ahead to the political changes expected at the forthcoming congress of the Chinese Communist Party, and how these will affect President Xi Jinping’s leadership position, broader government stability, and policymaking over the next five years. The report will also discuss China’s foreign policy priorities, noting in particular how diplomatic relations with the US will be affected with Donald Trump assuming the presidency, and how this might impact the regional balance of power and the climate for business in China, including capital flows and the exchange rate. Our report rounds out with a revised prognosis of key macroeconomic variables, including the stability of the real estate and banking sectors, how the authorities intend to deal with a rising debt burden that is still causing alarm, and what it will mean for China’s political and economic stability over the medium term.