Coming Soon in Our March 2018 Reports

, where the administration of President Donald Trump continues to be racked by rapid turnover of top-level personnel, and federal investigations into potential criminal actions by members of the Trump campaign—and possibly the president himself—pose a clear obstacle to boosting support for the Republican Party ahead of mid-term congressional elections that will be held in early November. The incumbents’ poll numbers improved somewhat following the approval of a massive package of tax cuts in late 2017, but the bump appears to have receded already. With little on the legislative agenda that might pull the Republicans out of their rut, the political winds are pointing to major gains for the opposition Democratic Party that will cost the Republicans their control of the House of Representatives and possibly (but less likely) the Senate.
The report will examine how the Republicans might avoid that scenario, but the analysis will focus on what Democratic control of the lower house will mean for the Republicans’ pro-business agenda, and the party’s chances of retaining the presidency beyond January 2021. PRS will also discuss how the Trump administration’s policy changes over the last year will affect economic performance in the near term and over the next five years, taking into account the constraints inherent under a divided government scenario.
Along with detailed assessments of political and economic developments influencing assets in Greece and Sweden, this month’s coverage of Western Europe features an update on Germany, where Chancellor Angela Merkel has once again demonstrated her deft diplomatic skills by persuading her conservative Christian Democratic Union (CDU) to agree to another grand coalition with the center-left Social Democratic Party (SDP). PRS will assess whether the two parties can stick together, and what will be achieved during the four-year term, both domestically and in terms of Germany’s influence on the international stage in its role as guardian of the EU project, and the euro. We focus on the SPD’s new leader Andrea Nahles, and the fact her party will oversee the Finance Ministry, but not the Economy Ministry, control of which returns to the CDU-CSU, alongside other ministerial responsibilities. The update will also discuss the implications of Merkel’s eventual departure, and replacement as party leader. In addition, we will examine Germany’s changing business climate and underlying economic outlook, gauging if recent improvements in economic growth will last, and how wage negotiations affecting competitiveness are faring.
Turning to Eastern Europe, PRS will issue a new report on Hungary, where voters are expected to deliver a fresh mandate for the incumbent Fidesz government headed by Prime Minister Viktor Orbán when they go to the polls on April 8. The opposition pulled out a surprise victory at a recent mayoral election in the Fidesz stronghold of Hodmezovasarhely by uniting behind a joint candidate. The setback for Orbán’s party highlights potential vulnerabilities for Fidesz, and may portend a reduced majority for the next government, but the absence of a basis for cooperation between the far-right Jobbik and more mainstream opposition parties will limit the risk that the elections might produce a hung Parliament.
PRS will examine the implications of another term for Orbán and Fidesz with regard to the government’s ongoing efforts to transform Hungary into what the prime minister has described as an “illiberal democracy” and the country’s increasingly testy relationship with the EU. Orbán’s prediction that 2018 will be “a year of great battles” suggests that he is not inclined to retreat on matters of national sovereignty, and the implications of that posture for the climate for investment and trade will be a central focus of the risk analysis.
Shifting to the Middle East and North Africa, the March roster includes a fully revised report on Iran, which was rocked by the worst episode of domestic unrest in nearly a decade in December. The analysis will include an examination of how the widespread discontent might affect the power struggle between Iran’s elected and reformist president and the conservative clerical establishment that wields its power largely through non-elected government bodies, supported by the elite Revolutionary Guards.
Rouhani has pointed to the unrest as evidence of an urgent need to implement economic reforms—including a reduction in the military’s economic holdings and the imposition of order on a chaotic banking system—that could have a significant positive impact on the climate for investment. PRS will assess the prospects for progress on that front, noting the political and structural impediments that will continue to pose an obstacle to reform for the foreseeable future. The report will also discuss Iran’s relations with the US and the Gulf monarchies, focusing on the ways that foreign-policy developments might affect both turmoil risk and the attractiveness of investment and trade opportunities created by the lifting of sanctions in 2015.
Our coverage of Asia this month analyzes recent political developments in China, focusing on an attempt by President Xi Jinping to consolidate his power by removing the two-term limit on holding the presidency as part of a constitutional make-over which may concern investors. The report will examine Xi’s possible motivation for proposing the change, and what it will mean for political stability given that there is no consensus among the elite for this new direction. The impact on foreign relations is discussed in terms of what an indefinite extension of Xi’s tenure could mean for regional security and trade-related issues, which will also be affected by the reshuffling of personnel in the Politburo.
Alongside that, we also assess how Xi’s policies are likely to pan-out over the next 12-18 months, and what effect this will have on economic trends, including managing GDP growth and financial sector restructuring. In that regard, our report devotes special attention to the debt problem, trade disputes, and regional disparities, and how these will all influence assets, including the currency, in 2018.
We also cast a spotlight on Japan this month to assess the government’s renewed agenda following the snap elections last fall which produced another term for Prime Minister Shinzo Abe and supermajorities in both legislative chambers for the alliance of Abe’s Liberal Democratic Party (LDP) and its smaller partner, Komeito. Our report assesses the prospects for progress on the prime minister’s controversial pet project of revising the country’s pacifist constitution and planned electoral reforms, in light of the re-emergence of a school-funding scandal that could negatively affect Abe’s prospects for winning a party leadership election that will take place in September.
In terms of the business climate, the report will assess the government’s chances of securing approval of labor reforms, which will be a top priority in the immediate near term, and is a key component of the so-called “third arrow” of Abe’s economic recovery program. We round out with a forward-looking assessment of economic prospects, including forecasts of real GDP growth, inflation, and the fiscal and external trade balances, as well as the Bank of Japan’s monetary policy strategy influencing the yen and asset prices.
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