Coming Soon in Our July 2019 Political Risk Reports

This month’s coverage of the Americas includes updates on Brazil and Canada, as well as a fully revised report on the United States, which faces a period of intense (and potentially dangerous) political polarization as the rival parties prepare for a November 2020 presidential election that many on both sides are already characterizing as an existential battle for the soul of the republic.  The opposition Democrats won control of the lower house of Congress at mid-term elections held last year largely on the strength of their pledge to act as a check on President Donald Trump and engage in vigorous oversight of an administration that opponents allege is rife with corruption. Thus far, the Democrats have proven to be largely ineffective, in part due to the stonewalling of the Trump administration, and they risk squandering an opportunity to consolidate their recent legislative gains and perhaps even reclaim the presidency in 2020 if they are perceived to be failing to hold the incumbents to account.

The report will examine the risks for investment and trade during what remains of the current term, focusing on the prospects for a refinement of (or a retreat from) a strategy that relies heavily on punitive tariffs to achieve policy aims, including some that are unrelated to trade.  PRS will also assess the likelihood that the 2020 elections will bring a shift in the relative balance of power between Trump’s Republicans and the Democrats, and discuss the impact on the policy direction beginning in 2021.  The analysis will include an examination of potential risks to the economy that could have a significant impact on the outcome of next year’s elections.

Turning to Western Europe, we feature Denmark, where a general election held on June 5 resulted in a victory for the main opposition Social Democrats, led by Mette Frederiksen, who will now head a minority government promising to increase public spending and introduce tougher climate change targets with the support of three leftist parties. While continuing the trend of center-left parties returning to power across the Nordic region, our report looks at how this may create huge tensions in the contentious arena of immigration policy, in light of the Social Democrats’ adoption of a position on the issue that is decidedly less liberal than those of its support partners. We also look at how public spending concessions to ensure support for the budget will impact on Denmark’s fiscal metrics, judging how it may impact debt reduction and Denmark’s cherished triple-A sovereign borrower credit ratings, if at all. We also forecast a range of macro-variables and explain why the outlook may differ from the ones depicted by official agencies.

PRS’ coverage of Eastern Europe includes updates on Hungary and Slovakia, the latter of which will focus on the implications of the victory of Zuzana Čaputová in the two-round presidential election held in March.  Although her anti-corruption platform was no doubt a major factor in her victory, Čaputová is an unabashed political progressive who defeated her second-round opponent, Maroš Šefčovič, an independent social conservative backed by the incumbent Smer, with more than 58% of the vote.  The strong popular endorsement of a progressive agenda runs counter to the main currents of EU politics over the past few years, and our analysis will include an assessment of whether the result is an anomaly, or a possible portent of a more general course change in Europe.

Turning to the Middle East and North Africa, the spotlight will be on Israel, where voters will return to the polls for the second time in five months in September, after Prime Minister Benjamin Netanyahu led his Likud Party to victory at a general election held in April, but failed to cobble together a coalition capable of providing the government with a parliamentary majority.  Netanyahu’s legal woes played a role in his inability to form a government, and his unsuccessful attempt to secure backing for a bill that would grant him immunity from prosecution could have an impact on the results of the upcoming election.

Recent polls indicate that Likud continues to run neck-and-neck with Benny Gantz’s Blue and White bloc, but that the opposition parties could win a narrow majority of seats in the 120-member Knesset.  Our update will focus on how a change of government would affect investment and trade policy, and will also address the implications for business-related risk that could be expected if another impasse in coalition negotiations creates pressure to form a national unity government, a scenario that implies Netanyahu’s retreat from active politics.

Over in sub-Saharan Africa we have three reports this month covering investor implications of political risk events, including two larger reports on Cote d’Ivoire and Ghana, and a shorter update on Namibia. Our report on Cote d’Ivoire seeks to ascertain whether the improved fundamentals still justify its comparatively low risk rating in the context of President Alassane Ouattara’s apparent pursuit of a constitutional change that would enable him to pursue a third consecutive term under the banner of the incumbent Rally of the Republicans. We look closely into the potential for inter-communal tensions to spark conflict in the advent of the 2020 elections, given the overlap of ethnic, regional, and partisan affiliations, and the presence of armed militants from neighboring states.  Our reports on both Cote d’Ivoire and Ghana also look into the ramifications of their recently inked gas agreement, and other recent developments of interest to investors, including moves to prioritize the introduction of a single currency for the Economic Community of West African States (ECOWAS).

Along with a detailed report on Australia and a post-election update on Indonesia, our coverage of Asia will include a report on Hong Kong, where the build-up toward a political conflict highlighted in our previous analyses has escalated in recent weeks. Our primary focus is on what effect the anti-extradition bill protests will have for the future of Carrie Lam, the Special Administrative Region’s embattled chief executive, and her government’s ability to pass other legislation after she was forced into an embarrassing U-turn on plans to allow extraditions to mainland China. We evaluate whether this will inject enthusiasm for populist policy maneuvers to win back public support, and how this battle of wills for the very future of Hong Kong’s democracy and the “one country, two systems” approach enshrined in its constitutional document, the Basic Law, will play out in terms of China’s future meddling in political arrangements. Our report weighs up these issues against the backdrop of prevailing economic strains to explore how Hong Kong will be affected by global trade risks, and what impact it will have on capital flows and hence the ability to defend the currency peg, with reference to China-US trade talks, and perceptions of Hong Kong’s special status being eroded by these domestic political tensions.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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