Economic Crisis in Venezuela (2010-03-09) Venezuela’s economic downturn continued to worsen in recent months, due in part to the mismanagement of the country’s economy by the government of President Hugo Chavez. This mismanagement led to a lack of investment in the country’s key oil, gas and electricity sectors and falling output in each of these sectors has contributed significantly to Venezuela’s current economic woes. If the government does not do more to boost investment in these sectors, it could find itself losing even more support, jeopardizing its grip on power in Venezuela. Venezuelan GDP contracted by 5.8% on an annualized basis in the fourth quarter of 2009. As a result, the country’s GDP shrank by 3.3% for the year in 2009, one of the worst performances of any economy in Latin America. This decline was largely due to the fact that oil prices, and oil output, fell significantly last year, reducing export revenues. In addition, power shortages continued to worsen in Venezuela in recent months as a drought, combined with a creaking power infrastructure, resulted in severe energy shortages. Finally, inflationary pressures continued to build, reducing consumer and business confidence in Venezuela. This worsening economic situation could have major implications for Venezuelan President Hugo Chavez and his socialist reform program. In recent years, he was able to maintain his grip on power through the overwhelming support of Venezuela’s poorer segments of society. However, the economic difficulties of the past year have cost President Chavez much of this support. As a result, the Venezuelan government has been forced to turn to increasingly authoritarian methods of maintaining its grip on power. If the economic situation continues to worsen, the threat of new political unrest in Venezuela will rise accordingly and President Chavez might be forced to use force to maintain his position.

Australia's Strong Economy (2010-03-03) Australia’s GDP rose by 2.7% in the fourth quarter of 2009, outperforming most of the world’s other developed economies. This growth was the result of a well-planned economic stimulus package by the Australian government and strong demand for Australian natural resource exports in China and other Asian export markets. Moreover, Australian economic growth is forecast to continue to exceed that of most other developed economies in the years ahead, as both export and domestic demand levels in Australia rise at a healthy pace. Australia fourth quarter GDP result was just the latest in a series of strong economic data to come from that country, as Australia was the largest developed economy to avoid falling into a recession during the recent global economic crisis. Earlier last year, it was sustained demand for natural resource exports in China that helped the Australian economy to avoid the sharp decline in economic growth experienced in most other developed economies. However, later in 2009, domestic demand levels also rose significantly, thanks in large part to the government’s economic stimulus programs that helped boost consumer and business confidence in Australia in recent months. Looking ahead, Australia is forecast to continue to record strong economic growth rates in the years ahead. At home, a rising population will spur economic growth on the domestic market and will allow Australia to maintain a relatively-favorable demographic balance in the coming decades. Meanwhile, Australia’s natural resource wealth and its proximity to Asia’s fast-growing economies will allow exports to continue to rise at a strong pace for the foreseeable future. As a result, Australian GDP is likely to average nearly three percent per year over the coming decade, one of the best outlooks of any developed economy.

East Asian Economic Growth Returns (2010-02-24) Economic growth returned across East Asia in late 2009 and early 2010, raising hopes that the region has completely recovered from the deep recession that hit the region in late 2008 and early 2009. Moreover, this return to growth has been experienced in nearly all countries in the region, unlike the uneven recoveries that are taking place in other regions such as North America and Europe. While some risks remain in place for East Asia in 2010, the region’s proximity to the fast-growing Chinese and Indian markets should allow this recovery to be maintained over the course of this year. Economic results for the fourth quarter have been released in a number of East Asian countries in recent days and they have confirmed that economic growth has returned to the region. For example, annualized GDP growth accelerated sharply in Taiwan (+9.2%), Thailand (+5.8%), Malaysia (+4.5%) and in Hong Kong (+2.7%) in the fourth quarter of 2009. This string of positive economic news followed the earlier announcements that the region’s two giant economies, China and Japan, had both recorded stronger-than-expected economic growth in late 2009. As a result, nearly all major economies in East Asia have returned to positive growth, a claim that no other major economic region can make. The key factor in this return to growth in East Asia has been the rapid growth of the Chinese domestic market during the past year. While East Asia’s economies were hit hard by the downturn in export demand from North America and Europe, a surge in demand in China in the second half of 2009 allowed these economies to quickly recover from this downturn. Looking ahead, the Chinese market, as well as the nearby Indian market, is forecast to grow at a much faster pace than any of the world’s key export markets. As a result, East Asian exporters will continue to boost their presence in China and India, allowing them to diversify their exports and lessen the impact of future downturns in North America and Europe on their economies.

Falklands Dispute (2010-02-23) New efforts by a British oil company to drill for oil in the territorial waters off of the Falkland Islands (Malvinas) have re-awoken the dispute over the ownership of these islands between Britain and Argentina. While the likelihood of a second war between these two countries for possession of these islands is highly unlikely over the near-term, Argentina will certainly not abandon its claim to these islands. Meanwhile, if oil is discovered in the waters off of the Falklands, tensions could rise even higher in the years ahead. When news spread of the intentions of a British oil firm to drill for oil off of the disputed Falkland Islands, the Argentine government quickly reiterated its long-held claim to the islands. While Britain has controlled the islands since 1833, Argentina has never renounced its claim to the islands, including an attempt to seize control of the islands by Argentina’s former military junta back in 1982. However, these islands held little economic interest for Argentina until new studies indicated that the waters surrounding the islands might be the home of vast reserves of oil, a development that has refocused Argentine attention on the South Atlantic. Argentina has won the backing of nearly all other Latin American countries for its claim to the Falkland Islands. However, neither Argentina nor its allies in Latin America have the military capability of seizing the islands from Britain. However, Argentina can exert considerable pressure on the Falklands by restricting shipping bound for the islands through its territorial waters and by using this dispute as a pretext to block British trade and investment in the region. Moreover, Argentine pressure could force Britain to commit more resources (military and economic) to the Falkland Islands at a time when British resources are already stretched quite thin around the world.

Exports Boost Japanese Economic Growth (2010-02-16) Japan’s economy continued to recover from its deep recession by recording higher-than-forecast growth rates in the latter part of 2009. While Japan’s domestic market remains weak, the world’s second-largest economy has benefitted from rising demand for Japanese exports in the world’s third-largest economy, China. While Japan’s late 2009 economic rebound was impressive, it remains to be seen if this growth will be sustainable due to the continued weakness of Japan’s domestic market. Japanese GDP grew by 4.6% on an annualized basis in the fourth quarter of 2009, a huge improvement on the sharp economic contractions recorded in late 2008 and early 2009. Despite this late year surge, Japan’s GDP contracted by 5.0% for the year in 2009, the country’s worst economic performance since the 1940s. The return to positive economic growth in Japan in late 2009 was the result of a sharp increase in exports to China, which has become Japan’s leading export market in recent years. As such, Japanese exports appear likely to enjoy a period of strong growth as demand in China and other Asian export markets will continue to rise in 2010. While the outlook for Japanese exports is improving, Japan’s domestic market remains extremely weak. Consumer demand in Japan will remain weak in 2010 and its long-term outlook is quite grim given Japan’s fast-shrinking population. Meanwhile, business demand levels in Japan remain depressed as many of Japan’s leading companies have faced extreme hardships during the global economic crisis. Add to this mix the long-term threat of deflationary pressures, and it is apparent that Japan’s domestic market will continue to inhibit Japanese economic growth, making the country even more reliant upon exports over the longer-term.

Ukraine Moves East (2010-02-10) In a tightly-fought contest, Pro-Russian candidate Viktor Yanukovych won Ukraine’s second round presidential election, defeating pro-Western Prime Minister Yulia Tymoshenko. Given the dramatic fall in support for the pro-Western government in Ukraine in recent years, this result was not a major surprise. However, Russia may not welcome the election of a man who has promised to improve ties between these two countries, as a more hostile government in Ukraine may better serve Moscow’s interests. Former Prime Minister Viktor Yanukovych won the second round presidential election in Ukraine, defeating Prime Minister Yulia Tymoshenko by a margin of 49.0% to 45.5%. While the vote was once again divided by Ukraine’s pro-Western northern and western areas and its pro-Russian eastern and southern areas, President-elect Yanukovych was able to make some inroads into the strongholds of the pro-Western camp due to the general satisfaction with Ukraine’s outgoing government. Moreover, despite claims of electoral fraud by the supporters of Prime Minister Tymoshenko, international election observers declared the vote to have been both free and fair. President-elect Yanukovych will face a host of problems upon taking office, including an economy in the midst of a severe recession and a country that remains deeply divided. However, his greatest challenge is likely to be managing Ukraine’s relations with its giant neighbor, Russia. It is no secret that many leaders in the Russian government wish to see the complete re-integration of Ukraine into Russia in order to restore Russian power and prestige in the region. However, a pro-Russian government in Kiev may make it more difficult for Moscow to find a pre-text for pressuring Ukraine into more concessions, particularly over the fate of Russia’s Black Sea fleet that is based on Ukraine’s Crimean Peninsula.

A Weak Euro Could Boost European Growth Prospects (2010-02-09) After a period of relative strength, the euro has weakened significantly against the US dollar and a host of other major currencies in recent weeks as the stability of the Eurozone (the 16 countries that use the euro) has been threatened by a worsening debt crisis in Europe. This has exposed some of the fundamental weaknesses of the euro as a multi-national currency, in particular the fact that widely disparate economies are forced to adopt the same monetary policy while not having a political union. However, the weakening of the euro might just be what Europe needs to kick-start its sluggish economy in 2010. The recent debt crisis in Greece, and the growing fears over the scale of national debts in Eurozone member states such as Spain and Portugal, has raised fears that the euro could weaken significantly in the coming weeks and months. Already, the euro has depreciated by ten percent against the US dollar in recent weeks as investors feared that confidence in the euro could collapse without a resolution to these debt issues. Moreover, Europe’s economic outlook remains extremely poor, leading many investors to reduce their euro holdings in favor of US dollars or other currencies. With the threat of instability in the Eurozone likely to remain in place in the coming months, the euro appears set to continue weakening in the near-future. While the rapid depreciation of the euro has been greeted with alarm in most European capitals, a weaker euro might be the catalyst that is needed to boost Europe’s sluggish economies. While other large economies such as the US and China have rebounded relatively-quickly from the recent global economic crisis, Europe’s economy has shown little signs of making a significant recovery, with all key economies in the region continuing to show little or no economic growth in recent months. However, Europe’s export-reliant economies would benefit this year from a significantly weaker euro, allowing them to offset the continued weakness of their domestic consumer and business markets. If the euro continues to weaken, Europe’s economic outlook is likely to markedly improve, at least among those countries not facing unsustainable debt levels.