2018 fourth-quarter forecast


The Americas stretch from the Arctic Circle in Canada to the southern tip of Chile. This geographically, culturally and politically diverse region is home to the United States, a nation whose geography helped it become the foremost economic and military power in the world — an ascendance aided in part by bringing Mexico and Canada into its sphere of influence. Farther south, the nations of South America are like islands, separated by vast spaces of impenetrable mountains, rivers and jungles. Try though these countries may to integrate more closely, deeper ties such as those that characterize North America will prove elusive.
5 MINS READSep 9, 2018 | 20:39 GMT
This geographically, culturally and politically diverse region is home to the United States, a nation whose geography helped it become the foremost economic and military power in the world
(FRANCK FIFE/AFP/Getty Images)

This geographically, culturally and politically diverse region is home to the United States, a nation whose geography helped it become the foremost economic and military power in the world

Key Trends for the Quarter

U.S. Pressures Canada in NAFTA Talks

After successfully pushing Mexico to agree to its key demands in NAFTA talks, the United States is turning its eye on Canada. It will use threats of auto tariffs and a bilateral trade agreement with Mexico to press for the resolution of contentious issues related to trade between the countries. Canada will resist the tariffs by emphasizing how they could harm the web of connections between the U.S. and Canadian auto industries. Though the White House will keep alive the threat of breaking NAFTA into bilateral trade deals, the move is unlikely to gain traction in Congress as lawmakers continue to emphasize the trilateral nature of any North American trade deal. Furthermore, if the Republican Party loses control of the House of Representatives in the midterm elections, obtaining congressional approval for negotiations on a bilateral deal would become extremely unlikely.

A graphic showing auto manufacturing trade between NAFTA countries.

In Mexico, a New Political Agenda Takes Shape

The main domestic priority for President-elect Andres Manuel Lopez Obrador and his administration will be laying the groundwork to help their National Regeneration Movement remain Mexico's strongest political party. To accomplish that, the government will increase social spending and also expand ties to the national teacher's unions and federal oil and gas unions that can help it marshal votes. But the administration will also consider using its control of Congress to tighten its authority over the exploration for and production of oil and natural gas and slow foreign investment in the sector. The government will halt new bidding rounds while it considers laws to give the country's state-owned energy company much greater authority over how energy blocks are allocated to investors for exploration and production. Those laws would reduce the appeal of the country's oil and natural gas resources to foreign investors virtually overnight. Read more about how public referendums would increase Mexico's instability.

Venezuela's Government Will Emphasize Cash Flow

As domestic oil production plummets, the Venezuelan government will make shipping crude to the U.S. market and repaying Chinese and Russian lenders its top priorities. Those relationships will remain crucial lifelines for Caracas. The United States is a major source of export revenue, while Russian oil company Rosneft and Chinese banks are key lenders. As hyperinflation, food shortages and mass migration worsen, more military dissidents will rise to challenge the government's hold on power. Venezuela's ruling body, the National Constituent Assembly, will remain close to President Nicolas Maduro. But its loyalty could be tested if powerful assembly members come to the decision that negotiating an amnesty deal with the United States and the political opposition is a preferable alternative to fending off further coup attempts.

A map showing South Americas travel rules for Venezuela.

Mercosur and Trade in Brazil and Argentina

The Common Market of the South — the South American trade bloc also known as Mercosur — could make progress on some of its free trade negotiations this quarter. However, political uncertainties surrounding the Oct. 7 presidential vote in Brazil might cause problems or even incur delays. In that race, candidates from both ends of the political spectrum have good chances of getting elected. However, Brazil's moves toward economic reform and trade liberalization would be at risk if one of the main center-left candidates, Ciro Gomes or Fernando Haddad, gets elected, because they will push protectionism. But the Mercosur trade talks that are already underway with the European Union, the European Free Trade Association and the Pacific Alliance are less vulnerable to changes in Brazil and less likely to suffer delays from a new government. In Argentina, despite growing current account and trade deficits and an unpopular administration, President Mauricio Macri will not soon deviate from trade and economic liberalization policies seen in the previous quarters. Read more about the trade bloc's plans.

Colombia Takes a Harder Line on Drugs and Security

In the fourth quarter, Colombia's new administration will take a stricter approach to its domestic security. The government will begin destroying coca plants wherever they are found. And in peace negotiations with National Liberation Army militants, the government will adopt more intransigent positions, likely leading the talks to stall. These policies will improve Bogota's relationship with the United States, but cutting coca production will reduce revenue for some criminal groups. This will spark greater violence as the groups move into other parts of the country and spread into extortion and kidnapping. Southwestern parts of the country, regions along the border with Venezuela, and the Colombian northwest face the largest risk of increased violence. And heavier violence in these areas would affect mining, energy production, agriculture and transportation. See what's ahead for the country in our assessment on the Colombian president's new policies.

Related Forecasts

These Stratfor analyses provide additional insights for the Quarter

Key Dates to Watch

  • Oct. 7: Brazil to hold federal elections and the first round of its presidential election.
  • Oct. 27: Brazil will hold the second round of its presidential election.
  • Nov. 6: Midterm elections to be held in the United States.
  • Dec. 1: President-elect Andres Manuel Lopez Obrador will take office.

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