Coming Soon in Our March 2019 Political Risk Reports

In addition to fresh analyses of Colombia and Costa Rica, PRS’ coverage of the Americas this month includes a fully revised report on Argentina, where President Mauricio Macri is running out of time to rebuild public trust before seeking a renewal of his mandate.  The painful austerity measures and unpopular structural reforms implemented by Macri’s center-right administration have failed to deliver the promised benefits, as forces largely beyond the president’s control battered the economy in 2018, forcing the government to seek emergency loans from the IMF and producing an unanticipated real economic contraction.

The report will examine the challenges facing Macri and his economic policy team as they attempt to right the economy, the main one being the still-inhospitable external conditions, which will heighten the danger of a risk-averse withdrawal of capital if the government gives in to the temptation to relax fiscal discipline in an election year.  Against that backdrop, PRS will assess the chances that Macri might be defeated by a center-left figure, or, possibly, by a populist outsider carried on a wave of anti-establishment sentiment, and what those alternative outcomes could mean for both government stability and policy direction over the next five years.

Our extensive coverage of Western Europe this month leads with a detailed report on Germany as we take a look at the political problems facing Angela Merkel during her fourth and final term as Chancellor as head of a re-formed coalition of her Center-Right Christian Democratic Union and Center-Left Social Democratic Party led by Andrea Nahles. Our report assesses the various issues at stake, including conflict that has developed within the government over a potential no-deal Brexit scenario, the rise in social tensions and political fallout caused by mass immigration, and economic policy choices the government must address ahead of the European Parliament and German local council elections in May, and state elections to be held in September in Brandenburg and Saxony providing litmus tests of respective political party popularity. Our report looks into the possibility of the government collapsing before its mandate is fulfilled in 2021 given that Merkel’s socialist partners are putting forward more left-leaning policy prescriptions under Nahles, and what alternative she may be able to cobble together in that eventuality. Our report then rounds out by looking at the recent slump in the economy to question whether it marks the beginning of a protracted weak period, or just a temporary slide, affecting German assets.

We also cover France and Greece this month, identifying key political and economic risks for the year ahead, and round-off our coverage of western Europe with an in-depth report on Sweden since the recent formation of a new government by Prime Minister Stefan Löfven which brought to an end four months of deadlock and extensive political bargaining caused by the inconclusive election results in September comprising four left-leaning parties – the Liberals, Greens, Center Party and Löfven’s Social Democrats – to marginalize the populist-right Sweden Democrats. Our report looks into the coalition agreement, the key players, and the government’s first budget bill to assess how it will impact Swedish assets and political stability over the coming months.

In that light, we also look at how the economy is faring given concerns over the health of the global trading environment, amid tightening financial conditions and tariff wars, and how authorities plan to respond to bolster employment and living conditions, and as far as the Riksbank (the central bank) is concerned address inflation risk by adjusting interest rates influencing the krona. As with our other risk reports, there is a synopsis included containing forecasts for a range of macro-fiscal variables, including GDP growth, inflation, external balance, and debt sustainability.

Coverage for Eastern Europe includes a fully revised report on Czech Republic, where the always questionable viability of Prime Minister Andrej Babiš’ minority government has been cast further into doubt by fresh corruption allegations against the ANO leader and disagreements between the coalition partners over tax policy.  The Social Democrats are pressing for a special tax on the banking sector, which they insist will be necessary to finance increases in social spending they were promised under the terms of their coalition agreement with ANO.  However, Babiš is loath to renege on a pledge to not increase corporate taxes, and the negative market reaction to a “greed tax” recently introduced in Romania will only stiffen his resolve.  The government survived a no-confidence vote in late November, but Babiš may not be able to count on continued protection from the far-left KSCM if he fails to deliver a tax on reimbursements to the church for property seized by the government during the period of Communist rule, which was recently voted down in the Senate.

The focus for the Middle East and North Africa is a new report on Iran, where the government headed by President Hassan Rouhani is encountering political troubles at home as the economic pressures created by the restoration of US sanctions contribute to hardship for ordinary Iranians.  International monitors have verified that Iran is continuing to honor the terms of the 2015 nuclear agreement, despite US President Donald Trump’s disavowal of the JCPOA, but officials in Tehran have made clear that they will consider the nuclear pact to be null and void if the other countries making up the so-called P5+1 do not counter US efforts to strangle the Iranian economy.

Our report will examine the impact of the US sanctions on Iran’s economy and assess the government’s ability to withstand the resulting political fallout, noting the implications for legislative elections that will be held in early 2020.  The analysis will also explore the risks associated with an anticipated rout of moderate reformists at the legislative elections and the presidential contest that falls due in mid-2021, including the impact on the climate for investment and trade, and the danger of military conflict with either the US or Iran’s chief antagonists in the region, Israel and Saudi Arabia.

Our coverage of Asia this month includes a detailed report on Japan, and another on the risks in China, looking in particular at the political power play within the higher echelons of the Chinese Communist Party (CCP) influencing economic and foreign policies, and how it will impact global and regional trade prospects. To that end, we rate the chances of an agreement with US negotiators that would bring to an end the self-defeating escalation of import tariffs, and whether a permanent, or only temporary solution can be found. We look at other issues facing foreign investors, including measures to root out corruption and stifle dissent, alongside fallout from the Huawei spying case and other key relationships with European and Asian partners, including tensions that arise from the “One Country Two Systems” approach to dealing with the futures of both Hong Kong and Taiwan. Our report looks in detail at economic prospects in the light of new, lower government growth forecasts and what the authorities are planning to do to provide support for business, and employment, through regional development plans, tax changes, and any moves to further liberalize the financial sector as the annual session of the rubber-stamping legislature and advisory body gets underway.

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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