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Coming Soon in Our October 2018 Political Risk Reports

Our extensive coverage of Western Europe this month includes fully revised reports on Finland and Sweden, as well as Turkey, where an early general election held in June resulted in a first-round victory for the incumbent, AKP leader Recep Tayyip Erdogan, in the presidential election, and the achievement of a solid legislative majority for the People’s Alliance, a coalition of the AKP and the rightist-nationalist MHP, in the 600-member Grand National Assembly.

The elections have triggered the implementation of political reforms approved by referendum last year under which the executive powers previously controlled by the prime minister (a position that no longer exists) have been transferred to the president.  Erdogan claimed that a presidential mode would promote political and economic stability, as the center of decision-making power would be less susceptible to populist pressures that might deter political leaders from taking unpopular but necessary action.

A bout of severe market volatility that has left Turkey at risk of an economic meltdown, providing an immediate test of the validity of that argument.  Our risk analysis will include a discussion of the government’s plans for containing the threat, and an assessment of the likelihood that Erdogan will use the powers at his disposal toward that end.  In addition to providing forecasts of the economic damage that might occur under both more and less favorable policy scenarios, the report will also explore the medium-term political ramifications if the president chooses to tackle the crisis head-on, or instead maintains the generally populist approach that has been his preferred strategy, particularly since he surrendered control of the prime minister’s post four years ago.

 An update on Germany examines how the political problems affecting the euro zone are likely to impact Chancellor Angela Merkel’s renewed grand coalition government, and also provides a forecast for the performance of the German economy and assets into 2019.  The regional coverage is completed by a timely update on the United Kingdom, which will assess whether negotiations over the terms for the country’s withdrawal from the EU will produce a hard or soft Brexit, and what either outcome will mean for equities, bonds, and the pound-sterling.

Prime Minister Theresa May will encounter significant political obstacles over the six months leading up to the UK’s departure from the EU in late March, judging by the evidence of deep dissatisfaction within her own Conservative Party with her so-called Chequers plan, the unveiling of which was followed by the resignations of both Brexit Secretary David Davis and Foreign Secretary Boris Johnson.  The PRS Group will assess the most likely outcomes in the event of a challenge to May’s control of her party and/or an early general election that is otherwise not required until mid-2022.  The update will also examine the state of the national finances and the economy before Brexit, and identify what policy steps might be taken to help offset economic risks in a “no deal” post-Brexit scenario.

Turning to the Middle East and North Africa, our coverage this month will include an update on Algeria, where President Abdelaziz Bouteflika has recently vetoed various reforms proposed by the government of Prime Minister Ahmed Ouyahia, moves that appear to be designed to show that the ailing president remains very much in charge, despite his health issues, ahead of his anticipated bid for a fifth term next year.  The policy moves also reflect a desire to avoid stirring popular unrest in a period of heightened political tension that is further highlighted by a recent reshuffle at the top level of the military.

The update will assess what these latest developments portend for the climate for investment and trade in the run up to the April 2019 election, at which Bouteflika, assuming he stands as the nominee of the incumbent coalition, will be a heavy favorite to win.  The analysis will also include a forecast of macroeconomic conditions this year and into 2019, taking into account the impact of the recent retreat from liberalization.

Our coverage of sub-Saharan Africa includes an update on Angola, which has attracted greater interest from investors since João Manuel Gonçalves Lourenço took over as president last year, promising a fresh start following four decades of unbroken autocratic rule under José Eduardo dos Santos.  Lourenço vowed to stage the nation’s first ever municipal elections, return the country to fiscal stability with technical help from the IMF, tackle corruption, and introduce investor-friendly legislation to put the economy back on its feet.  We look at how his accomplishments stack up against expectations, and explore how Lourenço’s aggressive campaign to sideline figures linked to his predecessor will affect longer-term political stability. Our report goes on to investigate various measures introduced by authorities to improve the business environment, focusing on changes to the aviation sector, an incentive scheme for small and medium sized enterprises, and improvements to energy and financial sector governance. We look at how relations with the IMF will fare, noting the medium-term outlook for fiscal metrics, and we round-out with a series of forecasts for key macroeconomic indicators including the currency.

This month’s coverage of Asia includes a political risk report on Singapore, which boasts one of the least risky investment climates in the world.  PRS’ analysis will include an evaluation of whether that will remain the case following an inevitable reshuffling of the top leadership of the long-dominant PAP, which according to Prime Minister Lee Hsien Loong’s self-proclaimed timetable, is expected to occur after the next general election falls due in January 2021.  Key risk factors include the potential for a generational transfer of power that brings an end to the Lee dynasty to sow instability within the PAP, and the possibility that policy makers might fail to respond adequately to public concerns surrounding social welfare.

A key part of the analysis will be an assessment of Singapore’s relations with Beijing and the impact of rising trade tensions between China and the US affecting Asian economies.  In that regard, we evaluate the outlook for exports, industrial production, and the economy as a whole, and whether this presages a bigger concern for investors into 2019.  In a similar vein, an update on Taiwan this month will examine how troubled cross-strait relations and trade frictions will counterbalance other more positive domestic policy developments, as well as looking in detail at any possible implications of the forthcoming local elections in November which set the stage for the next general election in 2020.

Looking at South Asia, the spotlight will be on Pakistan, where Imran Khan’s PTI emerged victorious at elections held in late July, ending the decades-long duopoly that saw power alternate between the PML-N and the PPP.  Khan’s victory is somewhat tainted by credible allegations that his campaign benefited from interference by the military establishment, a claim that raises questions about the new prime minister’s freedom to take action that conflicts with the wishes of the military brass, and will in any case pose an obstacle to constructive engagement with the parliamentary opposition, which controls a clear majority of seats in the Senate.

The report will outline the Khan government’s policy agenda, which focuses on promoting socioeconomic improvements through increased welfare spending, including a low-cost housing program, the promotion of investment in job-producing sectors, a crackdown on corruption and organized crime, and an ambitious restructuring of the state administration, to include the devolution of power to the provinces.  Our analysis will include an assessment of the new government’s chances of implementing its agenda, and the impact that its success or failure will have on the climate for investment and economic performance over the next five years.  In that vein, PRL will also discuss the implications of the Khan administration’s decision to forego a lending agreement with the IMF in favor of bilateral borrowing arrangements with China and Saudi Arabia, among others.

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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