Economic Growth Slows in Vietnam (2008-07-02) After recording three consecutive years of GDP growth in excess of 8%, Vietnam has seen its economic growth slow in the first half of 2008 as export markets have weakened and as soaring inflationary pressures have reduced consumer spending growth on the Vietnamese market. While the near-term challenges facing the Vietnamese economy are substantial, the long-term outlook for the Vietnamese economy remains bright. In addition, despite the slowdown, Vietnam will continue to outperform most of its neighbors in Southeast Asia, both this year and over the long-term. Vietnamese GDP growth slowed to 6.5% over the first six months of 2008, following GDP growth of 8.5% in 2007. With inflation now over 20% in Vietnam, this slowdown in economic growth will be welcomed by the Vietnamese government as it will reduce the threat of the economy overheating. However, it more is not done to bring inflation under control, Vietnam’s fast-growing domestic market could suffer a major slowdown in the second half of this year. Furthermore, export growth is likely to remain sluggish over the remainder of this year as key export markets will continue to record lower rates of economic growth. Despite the slowdown this year, Vietnam’s long-term economic outlook remains one of the brightest of any large emerging market in the world. Foreign investment continues to poor into Vietnam as it has attracted a great deal of investment in both low-cost manufacturing activities as well as more high-tech programs. Furthermore, with political unrest impacting many countries in East Asia in recent years, Vietnam remains one of the most stable countries in the region, allowing it to surpass many of its neighbors in terms of investment attractiveness. As a result, economic growth is likely to rebound by 2010, allowing Vietnam’s economic development to continue.

Fears of a Recession in Canada (2008-06-25) Following the shrinking of the Canadian economy in the first quarter of 2008, there are growing fears that Canada might be in the midst of a full-blown recession. However, this slowdown in economic growth in Canada has been the result of the poor performance of only a few sectors of the country’s economy, while other sectors continue to grow at a healthy pace. As a result, the longer-term outlook for the Canadian economy remains strong, despite the current slowdown. Canadian GDP shrank by 0.3% on an annualized basis in the first three months of 2008, while the outlook for growth in the second quarter of the year remained poor. As a result, there is a strong likelihood that Canada is in the midst of an official recession. However, this poor performance in recent months was due in large part to the sharp slowdown in export growth to the United States, particularly in Canada’s automotive sector. In fact, most other sectors of the Canadian economy continued to grow in the first quarter, and many other key economic indicators remained positive over that period. Despite the current slowdown, there are a number of factors that will allow the Canadian economy to outperform most other developed markets over the long-term. First, Canada has been able to diversify its exports so that it is no longer as dependent upon the US market as it once was thanks to a surge in exports to Asia. Second, while the US is currently in a slowdown, the long-term outlook for the US market remains healthy, with Canada having unique access to the world’s largest market. Third, western areas of Canada hold the potential for particularly strong economic expansion in the coming years, through the region’s vast natural resources and its increasingly diversified economy.

Zimbabwe on the Brink (2008-06-24) Following the announcement by opposition leader Morgan Tsvangirai that he was withdrawing from the second round presidential election in Zimbabwe, there is nothing in the way to prevent the country’s president, Robert Mugabe, from winning another term in office. Despite the fact that the Zimbabwean president has destroyed his country’s economy and made the country a pariah state, the use of force by his ZANU-PF party and Zimbabwe’s armed forces was enough to force the opposition MDC to abandon their bid to take power. Following his first round defeat in Zimbabwe’s presidential election in March 2008, President Mugabe appeared to be on the verge of finally being driven from power. However, following the first round of voting, his supporters, together with Zimbabwe’s military leaders, utilized a strategy that called for violence and intimidation against the opposition Movement for Democratic Change (MDC) and their leader Morgan Tsvangirai. As a result, the opposition leader was left with little choice but to withdraw from the race following the deaths of dozens of his supporters and the promise of more violence if the election went ahead. At the moment, there appears to be little that the international community can do prevent President Mugabe for remaining in power, despite the ongoing collapse of that country’s economy and the misery most of citizens are enduring. The country with the most influence in Zimbabwe, South Africa, has done nothing to prevent President Mugabe’s crimes due to the split within the ruling ANC over how to deal with Zimbabwe. Meanwhile, outside powers such as the United States could forcibly remove President Mugabe, but the outcome would likely be a bloody civil war inside Zimbabwe that could lead to an even worse humanitarian crisis in that country.

New Attempts at Middle East Peace (2008-06-18) In recent weeks, there have been a number of new attempts at finding a peaceful solution to some of the most intractable political disputes in the Middle East, with some progress being made on a number of them. First, a number of Arab countries, led by Qatar, have attempted to find a lasting peace deal between Lebanon’s various political and religious factions. Second, Israel and Syria have begun talks aimed at a peace deal, while Israel and Hamas have agreed to a ceasefire in the Gaza Strip. While the United States and many of its allies in the region had hoped that the fall of Saddam Hussein would lead to a spread of peace across the Middle East, the past five years have instead seen an even greater fragmentation of the region. However, the past few months have seen Lebanon back off from the brink of civil war thanks to the intervention of Qatar and other Arab countries, as well as Israel and Syria entering into negotiations aimed at reaching a peace deal between the two-long time rivals. Furthermore, there are signs that Israeli-Palestinian relations could improve following the recent cease fire between Israel and Hamas in the Gaza Strip. While there have been some encouraging signs in recent weeks, the threat of more violence and unrest in the Middle East will remain in place. First, while Israel has made moves towards stabilizing its relations with Syria and the Palestinians, its government is on the brink of collapse and it could be replaced by a more hard-line government in the near future. Second, the battle for influence in the region, involving Iran, Saudi Arabia, the United States and others is likely to intensify, further destabilizing areas such as Lebanon. Finally, new conflicts could arise in the coming months and years, with the battle for control of the region’s scarce water resources likely to be a flashpoint for future unrest.

Oil Prices Rise Again (2008-06-17) Oil prices rose to an all-time record level in mid-June, despite an announcement from Saudi Arabia that it would boost its oil output significantly in the coming months in a bid to keep oil prices from rising too far. With oil prices near $140 a barrel, inflationary pressures have continued to mount throughout the world, threatening to further slow economic growth in both developed and emerging economies. Moreover, despite the Saudi announcement, oil prices could rise much further over the remainder of 2008. Oil prices rose to almost $140 a barrel, leading to fears that the impact of these higher oil prices would be severe. Oil prices rose to this record level due to continuing high levels of demand for oil in Asia’s giant emerging markets as well as in North America and Europe, where the summer driving season has begun. Furthermore, fears of a cutback in output remained high in a number of areas, including Nigeria and Iran, where political turmoil continues to threaten to disrupt oil supplies. Even Saudi Arabia’s announcement that it would boost oil output by a further 200,000 barrels a day did little to calm fears that oil supplies would struggle to meet growing demand in the coming months. Over the near-term, there is a strong likelihood that oil prices will continue to trend upwards. In fact, there is now a 30% chance that oil prices could reach $200 a barrel over the next 12 months, due in large part to the threat of political unrest in key oil producing regions. In fact, until Saudi Arabia’s next major output boost (due sometime in 2009), the risk of a sharp rise in oil prices will remain in place. As a result, inflationary pressures will continue to grow throughout the world in 2008, reducing consumer spending in developed countries and leading to a major humanitarian crisis in many of the world’s poorest countries.

Musharraf's Uncertain Future (2008-06-11) The fate of Pakistan’s beleaguered President Pervez Musharraf remains highly uncertain, with rumors inside Pakistan suggesting that he is planning to resign and go into exile. Ever since the political opposition swept to victory in Pakistan’s parliamentary elections earlier this year, President Musharraf’s future has been highly uncertain. Now, with the parliament moving to strip the president of his powers, the key showdown for political power in Pakistan is about to take place. Since February 2008’s parliamentary election defeat, President Musharraf has been facing growing calls for him to step down from power. However, he has thus far rebutted any attempts to have him removed from office, setting up the current showdown between the government led by his opponents in the Pakistan People’s Party (together with their PML-N allies led by former Prime Minister Nawaz Sharif), and the increasingly unpopular president. In recent weeks, the parliament has begun proceedings aimed at stripping the president of most of his powers, a move that is certain to bring about one final clash between the parliament and the president. If the parliament, together with the country’s judiciary, is successful in stripping President Musharraf of his power, he will have two choices. One will be to oust the government via a military coup, although it appears that his support within the military has waned considerably since he stepped down as the head of the country’s armed forces late last year. The second will be to step down from office and to go into exile in order to avoid attempts to bring him to trial on various charges stemming from his time in power. Whichever decision he takes will have major implications not only for Pakistan, but for the entire region, given Pakistan’s key role in Central and South Asia.

The Threat of Inflation (2008-06-10) As food, oil and other commodity prices continue to rise, inflationary pressures are becoming the single greatest threat to the world economy this year. In developed economies such as North America, Europe and parts of East Asia, inflationary pressures continue to rise at the same time as economic growth is slowing, raising fears of a return of stagflation. Meanwhile, in key emerging markets such as China, India, Brazil and Russia, inflation rates are surpassing 10%, threatening to widen the wealth gaps in these countries and to slow the development of consumer markets. Inflationary pressures in the developed world have continued to grow in recent months, pushed upwards by rising food and fuel costs. In the United States, rising inflation has raised the threat of a prolonged economic downturn as usually robust US consumer spending levels have begun to falter. This is also the case in Europe, where many key European economies are facing the prospects of soaring inflation coupled with growing recessionary pressures. Moreover, both regions are forecast to realize additional inflationary pressures in the coming months, leading some economists to warn of the rising threat of stagflation, an event that could trigger a long period of slow economic growth in the world’s two largest economies. In the developing world, inflationary pressures are even greater, with the world’s largest emerging markets (China, India, Brazil and Russia) all facing the likelihood of inflation rates in excess of 10%. On the economic side, these growing inflationary pressures in emerging markets will slow the growth of domestic consumer spending that is needed to offset the expected downturn in export demand from the developed world. Meanwhile, the greater risk lies in the threat to the poorer segments of these countries’ populations, where food and other basic necessities are becoming too expensive to afford, potentially leading to severe social unrest.

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