5 September 2018

Global Issues to Watch in September

For international politics and the global economy, the past month could have been described as tumultuous, with concerns over the state of the economy and rising geopolitical risk levels mounting.  There were some positive developments last month, notwithstanding.  For example, the economic results for the second quarter that were released in recent weeks showed that most developed economies were continuing to record solid rates of economic growth, most notably the United States.  Likewise, most major Asian economies continued to grow at high rates as Asia continues to embrace its role as the leading driver of global economic growth. 

Despite these positive economic developments, there were still a number of issues that kept policy makers, business leaders and investors awake at night last month.  One issue was the turmoil that erupted in a number of emerging markets in recent weeks, leading to concerns about the collapse of the economies of a number of mid-sized emerging markets.  Likewise, trade tensions persisted, particularly as the United States and China continued to stumble towards a full-blown trade war.  In the United States, President Donald Trump’s legal concerns further raised the level of political uncertainty in the world’s most powerful country.  Finally, last month’s heatwave across the Northern Hemisphere was a powerful reminder that global temperatures continue to trend upwards at an alarming rate.

Here are five issues to watch in September that will have a major impact on the global economy and international security:

  • Emerging Markets in Trouble: The turmoil that has impacted many emerging markets in recent months shows no signs of abating.  In particular, emerging markets that are perceived to be vulnerable to external pressures, particularly those with large current account deficits, will remain under pressure and could be forced to take even more dramatic steps to prop up the flagging values of their currencies.  Among the most vulnerable emerging markets are Venezuela (obviously!), Argentina, Turkey and Iran, each of which has already experienced significant pressure on their currencies.  Should one or more of these emerging markets experience an economic crash, this could lead to a contagion that spreads to other at-risk emerging markets.  Among the other emerging markets at risk are South Africa, Brazil and Pakistan, each of which has good reason to worry about their economic and financial health.
  • NAFTA’s Uncertain Future: The future of NAFTA is likely to be determined in the coming days, with one of the world’s most ambitious free trade agreements clearly in jeopardy.  This follows the recent deal between the United States and Mexico to revamp NAFTA, a deal that has left many questions unanswered regarding NAFTA’s longer-term future.  Now, the US and Canada will meet again to discuss whether or not Canada will follow Mexico’s lead and give in to the Trump Administration’s demands for major changes to NAFTA.  If Ottawa agrees, President Donald Trump will be able to declare victory.  If Canada refuses, its economy could be in for a rough ride as few countries are as dependent upon a single export market for their economic growth as is Canada upon the US market.
  • The Threat of a US-China Trade War: While trade tensions between the world’s two largest economies have been rising steadily since last year, matters are likely to come to a head this month as the threat of a full-blown US-Chinese trade war increases.  This is due to the fact that, in the coming days, the United States has threatened to impose tariffs on a further $200 billion worth of imports from China, the latest, and largest, imposition of tariffs in this worsening trade dispute.  This, in turn, would prompt China to retaliate with tariffs on $60 billion of imports from the US.  For the United States, the leading risk is that these tariffs will add to the already rising inflationary pressures in place in the US.  For China, this trade war threatens to slow export growth at a time when domestic risks to the Chinese economy are on the rise.  For the global economy, these tensions threaten to lead to trade barriers being erected around the globe.
  • Swedish Elections: Normally, elections in a Scandinavian country would generate little interest outside of that region.  However, this month’s parliamentary elections in Sweden are attracting a significant amount of attention to that country.  This is due to the fact that a far-right party staunchly opposed to immigration, the Sweden Democrats, is poised to do very well in these elections.  While support for the Sweden Democrats has slipped in the most recent polls, the party nevertheless is in a position to finish in the top three and to win a large number of seats in the Swedish parliament.  What this means is that the Sweden Democrats will be in a position where almost any government formed after the election will be forced to rely on their support to remain in power.  For Europe, this will be the latest sign that populist policies continue to gain support across that region, as Sweden had long been one of the few countries without significant support for far-right or far-left political parties.
  • Brexit Nears an Endgame: For all of the talks and negotiations that have taken place since British voters opted to withdraw from the European Union more than two years ago, it seems as if the process of the British withdrawal from the EU, and the relationship between the UK and the EU after this withdrawal, are no clearer than they were before that momentous referendum.  As negotiations resume this month, there is a growing sense that a “no deal” Brexit is becoming a realistic possibility.  This has led to fears that the United Kingdom’s Conservative government could collapse over divisions on Brexit, while the British economy will be battered by all of this uncertainty.  Meanwhile, divisions within Europe appear to be widening with regards to Brexit, with some countries warning that they will not support a hard-line by the EU towards Britain. 

A look back at the events of the history of the past century shows that September is often a month filled with dramatic developments and a great deal of turmoil.  This September, a number of economic issues will be in focus as the global economy stands on the edge of what could be a period of major dislocation and instability.  For the moment, economic growth is continuing, raising hopes that the threats facing the economy will have but a minimal impact on this growth.  However, economic risk levels are on the rise, and this period may prove to be the high-water mark for the economy.  At the same time, political risk levels are also trending upwards, particularly in many of the world’s most powerful countries.  This too could end up having a major impact on the global economy, as politics are influencing the economy at a greater level than at any time in recent history.  What is certain is that this month will likely prove to be a very important few weeks for the global economy.