ISA Monthly Issues to Watch: May 2025
Spring Election Season
There will be a flurry of important elections taking place in May, each of which will be impacted by the rising levels of political and economic uncertainty around the world today. Already, one key election has taken place in Canada, and it will be interesting to see how relations between the United States and Canada progress in the wake of this election. Another crucial election will take place in Australia this month, with polls showing that this will be another close-fought election. Other important elections this month will be held in the Philippines, Singapore, Romania, Poland and Portugal.
First Quarter Economic Results
There will be much scrutiny of the first quarter economic results from around the world as they are released in the coming days. Already, China has released slightly better-than-expected results in the first quarter, but this was due largely to major stimulus programs and a surge of manufacturing output ahead of massive tariffs on Chinese imports into the United States. Recent South Korean results were significant worse than expected. In the coming days and weeks, most other major economies will release their first quarter GDP growth results, with those from the United States being the most closely watched. It is expected that, for many economies, the first quarter will be the calm before the storm, as worse results are expected for most economies in the second and third quarters of this year.
Will There Be a Ceasefire in Ukraine?
Thus far, efforts to reach a deal on a ceasefire in Ukraine have come to nothing, due in large part to Russia’s unwillingness to bring a halt to this conflict. In fact, all signs point to Russia wanting to drag out these negotiations in order to maintain a high degree of pressure on the increasingly-overstretched Ukrainian armed forces. While Russia has proposed a three-day ceasefire in early May, it has so far showed little interest in a lasting ceasefire (or even this three-day proposal). In the meantime, the conflict between Russia and Ukraine remains a deadly stalemate, with Ukrainian forces unable to drive their Russian counterparts from their territory. However, Russia has also struggled to win ground, and when they have managed to make incremental gains, it has come at a terrible cost in terms of personnel and materiel.
The Role of Central Banks
Central banks around the world are finding themselves in an increasingly precarious position. On one hand, central banks have been fighting an aggressive battle against lingering inflationary pressures. This led them to raise interest rates in previous years. However, as economic growth in many key economies has been quite sluggish, central banks have faced significant pressures from governments and businesses to lower interest rates quicker than they would like. In turn, this has led to increasing levels of interference from governments in the affairs of many central banks, threatening their independence. Now, this is happening in the world’s largest economy, the United States, as President Donald Trump steps up his criticism of the Federal Reserve. As a result, there are growing fears that central bank independence, a very crucial component of modern economic policymaking, is in increasing jeopardy.
Numerous Conflicts and Flashpoints
In addition to the war in Ukraine, there are numerous other conflicts that are continuing to rage as we approach May 2025. In the Middle East, Israel has resumed its conflicts in Gaza and Lebanon, while continuing to carry out attacks in Syria. In Sudan, the country’s armed forces have made significant territorial gains in recent months, but the Rapid Support Forces (RSF) paramilitary group continues to control most of the western part of that country. In earthquake-ravaged Myanmar, that country’s civil war has continued as the country’s military junta has lost control of much of that country. Meanwhile, there are mounting fears of a new conflict between India and Pakistan in the wake of the recent terrorist attack in Kashmir. At the same time, China’s increasing assertiveness in the South China Sea is causing significant concerns in that region. Altogether, geopolitical risk levels are at a dangerous level and are likely to remain there.
Coming to Grips with Public Finances
Many governments are aware of the need to improve the health and sustainability of their country’s public finances. However, too few governments have taken the steps necessary to properly address this problem. In the United States, the Trump Administration has launched a massive effort to cut government spending in order to improve the US’ financial position. However, these efforts have so far been a farce and could end up discrediting efforts to improve public finances in the US and elsewhere. This would be a serious setback for the global economy, as deteriorating public finances are a serious long-term threat to many economies. With public spending demands set to rise, particularly from rapidly-expanding elderly populations, improving public finances must be a priority for governments around the world.