quarterly forecasts

2019 Fourth-Quarter Forecast

51 MINS READSep 22, 2019 | 22:59 GMT
(J. Mitchell/ E. Lasalvia/ J. Yeon-je/ L. Suwanrumpha/ M. Ralston/ I. Lawrence/ Anadolu Agency/ AFP/ Getty Images/Shutterstock)

Overview

 

Iranian Brinkmanship Threatens Global Oil Supply, By Design. Iran will be prepared to run the risk of a limited military clash with the United States and Saudi Arabia, using the threat of escalation — and widespread fear of what a major oil supply disruption will do to an already skittish global economy — to push the United States back into a narrow negotiation centered on de-escalation in exchange for sanctions relief. European and Asian powers, along with front-line Persian Gulf states, will remain active in mediation efforts.

Brexit Uncertainty Is Prolonged. British Prime Minister Boris Johnson will push the United Kingdom to the brink of a no-deal Brexit in the second half of October, but London will once again avert a worst-case scenario. The politics of brinkmanship could produce a compromise over the Irish backstop, but, more likely, Johnson's resignation or a no-confidence motion will pave the way for another extension and an early election.

Testing the Groundwork for a Narrow U.S.-China Trade Deal. The White House will temper its ambitions for a comprehensive trade deal with China ahead of the 2020 U.S. presidential election, vying instead for a preliminary deal that brings some relief to U.S. farmers and that could result in some easing of export restrictions on Huawei. Nonetheless, several sticking points — and a heavy load of tariffs — will continue to weigh on the global economy. So long as the U.S. economy remains relatively stable, another breakdown in talks and tariff escalation cannot be ruled out.

 

 

WTO Limbo Invites More Trade Uncertainty. The United States will drive the World Trade Organization to an existential point when the appellate body of the organization becomes paralyzed in December as the White House deliberately blocks appointments to it. The move is in line with its long-standing argument that the consensus-ruled multilateral organization is not equipped to bring major trade abusers and influences like China into compliance. The shift from a rules-based system in governing trade disputes to one based principally on power and bilateral negotiations will inject more trade uncertainty into the global economy.

Easy Trade Wins Will Not Apply to the EU. As the White House tries to score smaller trade victories, Japan will be able to mitigate the threat of U.S. auto tariffs with the culmination of an initial trade deal. India, Mexico and growing trade targets like Vietnam will have a better shot at averting U.S. tariffs this quarter. U.S.-EU trade relations, however, will become rockier at a time when Germany is already at risk of recession.

Pushback in the Chinese Periphery. Persistent unrest in Hong Kong is unlikely to draw a heavy-handed Chinese intervention. However, the prolonged political standoff will diminish Hong Kong's reputation as a financial hub, diverting capital and investment to Singapore and Taiwan. The push against Beijing and the associated economic costs will feature prominently in Taiwan, where pro-independence and more Beijing-friendly candidates will be campaigning in the lead-up to a high-stakes election in January.

Populism and Financial Havoc Return to Argentina. A likely win for populist candidate Alberto Fernandez in Argentina's Oct. 27 presidential election will deepen financial turmoil, resulting in tighter capital controls. Black market influence will grow and difficult talks with the International Monetary Fund will follow as the new government tries to renegotiate the terms of its bailout agreement. A rise in protectionist barriers will derail EU-Mercosur trade relations and deepen frictions with Brazil.

Distractions Abound for the United States. An escalating crisis with Iran and troubled negotiations in Afghanistan will complicate the U.S. struggle to minimize distractions, deploy resources and fortify alliances in its competition with China and Russia. China will rely on economic incentives and implicit threats alongside Russia to dissuade the Philippines, South Korea and Japan from hosting U.S. land-based intermediate-range ballistic missiles. A trade war between Japan and South Korea will persist, further hampering U.S. efforts to shape a stronger allied front in balancing against China.

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Global Trends

10 MINS READSep 13, 2019 | 20:30 GMT

The "Uncertainty Factor" Grows

Uncertainty stemming from geopolitical risk is one of the chief drivers of stagnant economic conditions in much of the world. After all, how can businesses make reliable investment decisions when they don't know whether tariffs will go up or down, or what export controls they might face? From Brexit to the potential for war in the Persian Gulf to the White House's trade wars, the "uncertainty factor" weighing on the global economy will be accentuated in the fourth quarter. Under such jittery economic conditions, major central banks, already strapped for options, will attempt monetary stimulus at a time of historically low interest rates. Governments meanwhile will face pressure to temper deficit concerns and provide fiscal stimulus to boost their economies.

This will also be a quarter of diplomatic experimentation. With the 2020 U.S. presidential election in mind, the White House will struggle to translate its multiple maximum pressure campaigns into tangible deals. The biggest targets of U.S. policy will not be interested in doing U.S. President Donald Trump any political favors. But they will be testing whether the nearing election and a more worrying economic outlook will make Trump any more pliable in negotiations.

Brinkmanship in the Persian Gulf

With a drone and missile attack that took out 5 percent of the world's oil supply, Iran has demonstrated a highly credible threat to regional energy producers and the global economy at large. At the same time, following a summer of brazen attacks on oil tankers, Iran has exposed Trump's extreme reticence to enter another messy war in the Middle East and the degree to which front-line Gulf Arab states are vulnerable to Iranian retaliation in a military confrontation. Moreover, as a wider industrial slowdown, Brexit tensions and uncertainty over the U.S.-China trade war weigh on the global economy, European and Asian stakeholders in the Persian Gulf will continue to favor mediation over confrontation with Iran. It can be reasonably confident, therefore, that even a sharp escalation will lead to a rapid de-escalation in which an array of mediators will help it barter reduced tensions in the Persian Gulf and a pause in nuclear activities for sanctions relief. The White House will try to exhaust its nonmilitary options in dealing with Iran. But Tehran has also likely factored in the cost of a limited conflict with the United States and its Gulf allies when planning its attacks and threats.

In the immediate term, Saudi Arabia will be able to eat into its spare capacity to cover the shortfall in supply and to mitigate the disruption to energy markets. Reduced demand from slowing economic conditions overall has also dampened much of the impact from the most significant attack on Gulf energy supply in history. That said, Saudi Arabia and other Gulf states cannot rule out additional attacks on critical energy chokepoints that could lead to lengthier disruptions at a time when Saudi redundancy has been reduced as it works to repair damage at the Abqaiq and Khurais oil installations. In the event of escalation and further damage to Gulf infrastructure, coordination among OPEC and non-OPEC producers in managing global oil supply in the face of depressed demand and persistent U.S. shale production will falter.

Ripe Conditions For Another U.S.-China Truce

Stratfor's Third-Quarter Forecast stated "While there is a small window for a truce between U.S. President Donald Trump and Chinese President Xi Jinping, there is a stronger likelihood that the White House will follow through on its threat to impose tariffs on remaining Chinese imports." That proved to be the case as a temporary truce from Trump and Xi's meeting at the G-20 summit in June quickly wore off, Beijing hardened its position and the White House lashed out with a broader set of tariffs covering all Chinese imports. Once again, conditions for a truce are building in the lead-up to high-level trade negotiations in early October. With Trump under more political pressure to deliver results from the trade war and China under heavy economic pressure, there is potential for a narrow, preliminary deal to emerge to break the impasse. That could entail the White House suspending further tariffs and easing Huawei export restrictions in exchange for China resuming purchases of U.S. agriculture and perhaps energy. A more substantial interim deal could encompass a rollback of some tariffs in exchange for some of China's earlier commitments on issues like intellectual property protections and expanded market access.

Even with a narrow deal — which is by no means guaranteed within the quarter — stickier issues surrounding China's industrial policy, national security concerns and the White House's preferred means of enforcing any deal will remain outstanding. As such, the resumption of tariff threats in response to another standoff cannot be ruled out. So long as the U.S. economy remains relatively stable and the Chinese economy continues to sputter, Trump may calculate that he still has some room to escalate the trade war — and drive the U.S. Federal Reserve to lower interest rates in the process. If the talks go south again, Beijing will selectively retaliate and hold out on substantial concessions until 2020 before reassessing whether Trump will be more willing to strike a deal with election pressures mounting.

So long as the U.S. economy remains relatively stable and the Chinese economy continues to sputter, Trump may calculate that he still has some room to escalate the trade war.

With the trade war already at an extreme stage and the White House eager to demonstrate some trade wins, some of Trump's other trade targets may be able to breathe easier this quarter. The White House will seal a limited trade deal with Japan that neutralizes the U.S. threat of auto tariffs and expands market access for U.S. agricultural (mostly corn and pork) exporters. Vietnam, the biggest Asian alternative for companies looking to divest or reexport from China, and India, already facing a number of big sticking points in slow-moving trade talks, will highlight purchases of U.S. goods and security cooperation to try to keep trade tensions calm. Mexico will also be able to avoid tariffs this quarter as migrant flows to the United States remain at manageable levels and as the White House avoids creating a major disruption to U.S.-Mexico trade that would carry significant electoral consequences.

A High-Stress Quarter for Europe

U.S.-EU trade relations are bound to worsen in the fourth quarter. A new and even more hard-line EU trade commissioner will not budge on U.S. demands to include agriculture in trade talks. This will raise the threat of U.S. auto tariffs on the European Union at a time when the heavily export-dependent German economy is heading toward recession. In addition, the United States will impose tariffs on the European Union as part of a long-running trade dispute between Airbus and Boeing and will sustain a tariff threat against France over its new digital tax policy. The European Union will be prepared to retaliate against U.S. tariffs, and U.S. agriculture will remain a prime target.

U.S. trade blows to Europe will pale in comparison to the drama that Brexit brings.

U.S. trade blows to Europe will pale, however, in comparison to the drama that Brexit brings. Fears over a no-deal Brexit will spike ahead of the Oct. 31 deadline for the United Kingdom to leave the European Union. In the end, a disorderly Brexit will likely be avoided. British Prime Minister Boris Johnson's Brexit brinkmanship could result in a last-minute compromise on the Irish backstop to allow the United Kingdom to leave by the Oct. 31 deadline. Barring that, Johnson's resignation or a no-confidence motion against his government will leave the task of requesting another Brexit delay and electing a caretaker prime minister to the eleventh hour. The heavy economic pressure piling up on the European Union will compel the European Central Bank to return to stimulus measures, providing a boost to a beleaguered Italy while creating more political discord in Germany.

The WTO Reaches an Existential Point

Trade battles and elusive deals are already a source of great uncertainty for the global economy, but this quarter, the Trump White House will drive the global trading system further away from the rules-based system the United States helped create to one based principally on power. On Dec. 10, the World Trade Organization's appellate body will fall below the required three members it needs to function because the United States has blocked appointments to the body, effectively paralyzing the appeals process.

The White House is operating on the assumption that a shift from a multilateral system to bilateral negotiations to resolve trade matters will allow the United States to wield its immense power to settle disputes in its favor.

The ad hoc system that the European Union has formulated to arbitrate trade disputes in this period of limbo will operate on a voluntary basis, and rulings will not be binding. More likely, countries will simply agree either not to appeal their cases, or try to settle them bilaterally or through mechanisms in free trade agreements. The White House is operating on the assumption that a shift from a multilateral system to bilateral negotiations to resolve trade matters will allow the United States to wield its immense power to settle disputes in its favor. As we can see from the White House's array of trade battles, however, that is easier said than done.

Great Power Courtship in the Borderlands

An intensifying arms race among the United States, China and Russia will bring more attention to key middle powers in the Western Pacific and Eurasian borderlands. The United States will be busy this quarter trying to persuade South Korea, Japan and possibly the Philippines to host its land-based intermediate-range missiles. China and Russia will use a carrot-and-stick approach to try to dissuade them from drawing deeper into the U.S. security orbit. Beijing's growing economic engagement with Manila and a deepening trade war between South Korea and Japan will work in China's favor as it uses economic sweeteners to try to undermine the U.S. network of Pacific allies. In Europe, the United States is unlikely to take the first step of deploying land-based intermediate-range missiles on the Continent. Russia will quietly ramp up and deploy its own intermediate-range missiles at a more incremental pace as it tries to uphold the narrative that the United States is to blame for fraying arms control frameworks.

Key Dates to Watch

  • October: High-level U.S.-China trade talks expected early in the month.
  • Oct. 15: The White House will increase tariffs from 25 percent to 30 percent on $250 billion worth of Chinese goods; these tariffs could be suspended if an interim deal emerges.
  • Oct. 31-Nov. 1: U.S. President Donald Trump and Chinese President Xi Jinping will have an opportunity to meet on the sidelines of the Association of Southeast Asian Nations summit in Bangkok.
  • Nov. 16-17: Trump and Xi will have an opportunity to meet on the sidelines of the Asia-Pacific Economic Cooperation summit in Santiago, Chile.
  • Nov. 20: The deadline for Trump to decide whether to impose tariffs on automobiles and auto parts will pass.
  • Dec. 5-6: OPEC and non-OPEC meetings will occur in Vienna.
  • Dec. 10: The World Trade Organization's appellate body will fall below the required three members it needs to function, throwing the dispute settlement body into paralysis.
  • Dec. 15: The White House will impose 15 percent tariffs on $160 billion worth of (mostly consumer) Chinese goods will take effect on this date. Chinese retaliation will include a 25 percent tariff on U.S. autos and auto parts. These tariffs could be suspended if an interim deal emerges.

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Europe

To the west of Eurasia lays Europe, a region predisposed to division. It is surrounded on nearly all sides by islands and peninsulas that make it difficult for Europe to cohere. The northern half of the continent, moreover, sits on a plain whose short, meandering rivers tend to empower countries without forcing them to work with others. The southern half is situated on more mountainous terrain that has historically impeded the creation of strong, unified economies. As a result, Europe is a continent riven by pockets of distinct cultures whose differences are all too often irreconcilable.

6 MINS READSep 18, 2019 | 20:56 GMT
Europe is a continent riven by pockets of distinct cultures whose differences are all too often irreconcilable.

Europe is a continent riven by pockets of distinct cultures whose differences are all too often irreconcilable.

Key Trends for the Quarter

The Brexit Battle Reaches Its Climax

The fight between the British government and the opposition in Parliament and the negotiations between the United Kingdom and the European Union will climax during the quarter, and a hard Brexit will likely be avoided. A last-minute deal between London and Brussels is possible. If there is not an agreement, the United Kingdom will ask the European Union to delay Brexit for a few more months. This could happen either because British Prime Minister Boris Johnson upholds a law forcing the government to seek an extension, or because Johnson is defeated in a no-confidence motion or resigns, prompting Parliament to replace him with a prime minister who will request an extension.

Following these events, a general election is likely by the end of the year. This could usher in a government willing to pursue close ties with the European Union after Brexit (or even willing to consider a new referendum on EU membership), a hard-line government willing to prioritize Britain’s national sovereignty over ties with the EU, or another fragmented legislature unable to unite behind a coherent Brexit plan. This means that while the United Kingdom will avoid the economic disruptions of a disorderly Brexit, it will probably provide only a reprieve to households, businesses and investors: Long-term questions about the future of British-EU relations will remain unanswered.

Find out how the battle between Johnson and the British opposition will play out in this Stratfor assessment.

More Budget Battles Ahead in Italy

Italy's new pro-EU government will remain in place during the quarter, sparing the country the prospect of early elections. The governing Five Star Movement and Democratic Party will face internal disputes over issues such as institutional reforms and public spending, but not to the point that their partnership will collapse. Their main challenge will arrive in October when Rome must present a 2020 draft budget to the European Commission. It will pressure Italy to reduce its deficit, raising tensions between Rome and Brussels — and between the coalition partners about the best way to comply. This could lead to debt market volatility, but Italy and the commission will eventually find a compromise they can both accept, and Rome will escape sanction.

The new political environment in Italy will provide some degree of certainty because there is no immediate prospect of either an early general election that the Euroskeptic right could win or a radical change in policy direction (such as leaving the eurozone). Still, the Italian economy will continue to post only meager growth and remain under the heavy burden of its debt, while issues such as immigration will continue to worry significant numbers of voters. And though no Euroskeptic government will take power in the short term, such concerns will continue to generate long-term uncertainty about Italy's future in the eurozone.

For more about the implications of Italy's policies for the broader eurozone, click here.
 

An Economic Slowdown in the Eurozone

Growth in the eurozone will slow, forcing governments and institutions to consider measures to boost economic activity. The European Central Bank will reintroduce its bond-buying quantitative easing program in November. Governments, particularly in Southern Europe, will propose higher public spending in their 2020 budgets. This will lead to disputes with the European Commission, but Brussels will seek to compromise with member states instead of pursuing sanctions.

Debate over how to deal with a worsening economic environment will test the governing coalition's stability in Germany.

The most intense debate over how to deal with a worsening economic environment will occur in Germany, where the center-left Social Democratic Party will pressure its main coalition partner, the center-right Christian Democratic Union, to increase public spending. Though this will test the coalition's stability, the German government is unlikely to fall. Since Germany's massive fiscal surplus gives it some room to spend without threatening its popular zero-deficit policy, Berlin will consider modest stimulus measures — especially if data continues to suggest the economy is slowing.

To learn more about Germany's economy, click here.

Challenges for the New EU Commission

The new European Commission will continue negotiations with the White House over a free trade agreement, but it will stick to its existing mandate, which excludes agriculture. This makes a comprehensive EU-U.S. trade deal unlikely in the fourth quarter, though agreements on issues such as nontariff barriers are possible. In response, Brussels will also be ready to impose tariffs on U.S. goods, including politically sensitive products such as food and vehicles, should the United States follow through on a threat to introduce higher tariffs on EU automobiles. The possibility of tit-for-tat sanctions, whether because of reciprocal accusations or subsidies for aircraft manufacturers, is high. And while France and the United States recently agreed to discuss the taxation of digital companies within the framework of the Organization for Economic Cooperation and Development, the White House will continue a Section 301 probe into the impact of Paris' digital tax on U.S. companies. This could ultimately result in U.S. sanctions targeting French products such as wine, which would once more force the European Union to retaliate. 

The European Commission will also try to carve out a role for Europe amid intensifying geopolitical competition between global giants like the United States and China. Brussels will support plans to create European "supercompanies" through mergers and financial assistance to compete with large Chinese and American conglomerates, as well as plans to deepen defense cooperation within the European bloc to improve the Continent's efficiency in military spending and increase its global military reach. Most of these plans, however, will not be implemented during the quarter, since that would require months of negotiations among EU member governments.

To learn more about the obstacles to a U.S.-EU trade deal, read Stratfor's recent analysis.

Additional Forecast

This Stratfor assessment provides additional insight for the quarter

The outcome of Poland's general elections and Romania's presidential election will shape those countries' relations with the European Union.

Key Dates to Watch

  • October: New members of the European Commission begin their duties.
  • Oct. 14: Prime Minister Boris Johnson's temporary suspension of the British Parliament ends. 
  • Oct. 15: Deadline for EU countries to present their 2020 draft budgets to the European Commission.
  • Oct. 17-18: The European Council meets.
  • Oct. 31: Barring another extension, Brexit comes into force.
  • November: A new president of the European Central Bank takes over.
  • November: The U.S. government faces a deadline to decide whether to impose auto tariffs on the European Union.
  • Dec. 12-13: The European Council meets.

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Asia-Pacific

The Asia-Pacific is home to more people than any other region. Centered on the western rim of the Pacific Ocean, this region includes the easternmost countries of continental Asia as well as the archipelagos that punctuate the coast. Several of these countries, most notably China, experienced rapid economic growth in the second half of the 20th century, giving the region a new sense of global economic relevance that continues today. That relevance, however, depends largely on China, a power in transition whose rise is testing the network of U.S. alliances that have long dominated the region. How effectively Beijing manages its transition will shape the regional balance of power in the decades to come.

7 MINS READSep 18, 2019 | 21:50 GMT
Centered on the western rim of the Pacific Ocean, the Asia-Pacific region includes the easternmost countries of continental Asia as well as the archipelagos that punctuate the coast.

Centered on the western rim of the Pacific Ocean, the Asia-Pacific region includes the easternmost countries of continental Asia as well as the archipelagos that punctuate the coast.

Key Trends for the Quarter

Weathering the Trade War

While U.S.-China trade talks will likely hit additional speed bumps, for most of the fourth quarter the two sides will explore a truce to support further talks. The outreach would consist of a narrow, preliminary deal under which China would, at a minimum, resume purchases of U.S. agricultural products, and perhaps energy, in exchange for Washington lifting some restrictions on Huawei and withholding new tariffs. But even as this preliminary deal opens the path toward a more substantial deal, deep uncertainty will still roil the Chinese and global trade outlook as the two sides wrestle with thorny questions about Beijing's industrial policies, protections for intellectual property and support for state-owned enterprises.

Beijing will expand stimulus measures in the next quarter to prevent rising manufacturing unemployment after the Lunar New Year celebrations.

Regardless of whether China and the United States strike a truce, Beijing will expand stimulus measures in the next quarter to prevent rising manufacturing unemployment after the Lunar New Year celebrations in late January. The government will combine measured monetary easing, such as selective interest rate cuts and fiscal subsidies for vehicle and household appliance purchases, to stimulate consumption. Beijing will force local governments, which are already facing growing budget constraints, to spend more on infrastructure projects and employment training, but that will incite resistance — and rack up debt — among local jurisdictions well beyond the next quarter. Take a look at this Stratfor assessment for more on how China hopes to use tax cuts to stimulate its economy.

Ultimately, China's stimulus measures will not prevent its economy from slowing or the trade war from hurting Asia-Pacific countries that trade with China and the United States, especially Singapore, South Korea and Taiwan. Together with others such as Indonesia, Thailand and Malaysia, these countries will combine rate cuts and investment spending with incentives for manufacturers leaving China. But Indonesia is particularly vulnerable because of its current account deficit and weak currency, which compel Jakarta to find other export destinations and offer sweeteners to draw investment.

Although Vietnam has served as a key destination for relocating manufacturers, it faces serious risks from an extended trade war and an ailing South Korean electronics sector. But with few monetary options, Vietnam will worry that significant easing will invite further U.S. accusations that it's manipulating its currency. To learn how the rest of Southeast Asia could benefit from China's economic woes, click here.

The Elephants Fight, and the Grass Suffers

As the White House squeezes China and the region on trade, it will also ramp up the pressure on China in its periphery with moves like the $8 billion sale of F-16V jets to Taiwan and the possible imposition of human rights sanctions on Beijing over its crackdown on ethnic Uighurs in Xinjiang. The Better Utilization of Investment Leading to Development Act will take effect on Oct. 1, giving Washington more financial tools to counter China's Belt and Road Initiative. While the rest of Southeast Asia remains cautious about endorsing U.S.-led restrictions on Huawei and backing freedom-of-navigation patrols in the South China Sea, Vietnam's ongoing Vanguard Bank standoff with China gives it another reason to improve security ties with the United States during President Nguyen Phu Trong's expected visit to Washington in October. Read this Stratfor assessment for more about how Beijing is trying to sweeten the pot on the Belt and Road Initiative.

Two Hot Spots on China's Edges

Hong Kong's protests are trending toward de-escalation, but they are far from over. Although more radical protesters will struggle to sustain momentum, they will continue to use extreme tactics to push their demands; at the same time, the city's deep grievances against mainland control could easily reignite larger demonstrations. Even if Hong Kong avoids a harsh crackdown or, in an unlikely scenario, a costly direct intervention by Beijing, it will have to expand its pro-business policies to bolster its economy as the extended unrest gives alternate financial centers like Singapore and Taiwan the opportunity to reap gains. For more on where Hong Kong's protests are heading, see Stratfor's latest assessment.

Ahead of Taiwan's January 2020 elections, incumbent President Tsai Ing-wen will focus on Chinese intimidation and the Hong Kong crisis to highlight sovereignty and democracy. Elevated security ties with Washington will precipitate a Chinese response — and perhaps even lead to unintended clashes in the Taiwan Strait — during the electoral season.

Walking the Line on North Korea

North Korea faces a tough decision as it confronts internal pressure to alleviate sanctions and considers the possibility that U.S. President Donald Trump could lose the 2020 elections. North Korea will express its growing impatience as the self-imposed year-end deadline for progress approaches by pushing the envelope on weapons tests.

If North Korea senses that Trump will lose in 2020, it may agree to a compromise nuclear deal, calculating that it can obfuscate and hold on to much of its nuclear program.

But given the costs of a complete rupture in U.S.-North Korean talks and the dubious value of an interim deal to either side, discussions are likely to stagger along without major eruptions. Still, if North Korea senses that Trump will lose in 2020, it may agree to a compromise deal as insurance, calculating that it can obfuscate and hold on to much of its nuclear program. Of course, such a breakthrough would require Washington to soften its demands — which will prove to be a difficult sell in the White House. Click here to see Stratfor's most recent take on U.S.-North Korean talks.

The Japan-South Korea Rift Deepens

South Korea's economy is in for worse days ahead as trade disputes with Japan intensify. Even as it is buffeted by the effects of the U.S.-China trade war, South Korea will rally around the flag, with continued boycotts of Japanese goods and export restrictions. Japan, having initiated the trade standoff, will continue its pressure given that blowback from South Korea amounts to a marginal economic concern as it balances between supporting exports and threatening growth with a consumption tax hike. With Tokyo and Seoul having scrapped their direct intelligence-sharing agreement, their standoff will trouble the U.S. alliance structure but not damage core cooperation given Washington's ability to facilitate interactions as needed. Perceiving an opportunity in the alliance's internal disagreements, China will move to incrementally boost economic links with the feuding neighbors.

Additional Forecasts

These Stratfor assessments provide additional insights for the quarter

Key Dates to Watch

  • October: Vietnamese President Nguyen Phu Trong is expected to visit Washington.
  • Oct. 1: Japan imposes a long-awaited consumption tax hike.
  • Oct. 1: The People's Republic of China celebrates the 70th anniversary of its founding.
  • Oct. 31-Nov. 4: Thailand hosts the 35th Association of Southeast Asian Nations Summit and Related Summits.
  • Nov. 16-17: Chile hosts the Asia-Pacific Economic Cooperation summit.
  • Nov. 19: The White House's 90-day deadline for a reprieve for Huawei runs out.
  • Nov. 22: The Japan-South Korea intelligence-sharing pact formally expires.
  • Dec. 24: China hosts a possible trilateral summit also featuring South Korea and Japan.
  • Jan. 1, 2020: North Korean leader Kim Jong Un issues his New Year's address as Pyongyang's deadline for greater U.S. flexibility expires.
  • Jan. 11, 2020: Taiwan holds general elections.

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Middle East and North Africa

The Middle East and North Africa is the world's crossroads. It encompasses the Arabian Peninsula, the mountains of Iran, the plains of Turkey, the deserts of the Levant, the lands north of the Sahara and all coasts in between. The story of the region, as is so often the case of places stuck between foreign players, is the story of trade, exchange and conflict. The traditional powers of the region are Turkey and Iran — Saudi Arabia and Egypt are the current Arab powers — and their competition for influence over the region's weaker states makes the Middle East and North Africa an arena of violence and instability.

6 MINS READSep 19, 2019 | 16:31 GMT
The Middle East and North Africa encompasses the Arabian Peninsula, the mountains of Iran, the plains of Turkey, the deserts of the Levant, the lands north of the Sahara and all coasts in between.

The Middle East and North Africa encompasses the Arabian Peninsula, the mountains of Iran, the plains of Turkey, the deserts of the Levant, the lands north of the Sahara and all coasts in between.

Key Trends for the Quarter

The Iran-U.S. Standoff Rests on a Knife's Edge

To demonstrate its resolve and build leverage it can use in future negotiations, Iran will risk military conflict with the United States and its regional allies as U.S. sanctions intensify. Both Iran and the United States will probe the potential for preliminary talks in the quarter they seek to build up and maintain advantages ahead of any sit-downs. For the United States, this means deepening sanctions and using fewer offensive tools such as cyberattacks in response to Iranian threats. Iran will make incremental — not extreme — moves on its nuclear activities, increase its support for regional proxies and continue to threaten vessels and energy assets in the Persian Gulf. Tehran's activities will increase the risk of a U.S. military response, but President Donald Trump will remain reluctant to stoke a major Middle Eastern conflict in the runup to the 2020 U.S. presidential election, a reticence that Iran shares because of its own domestic politics. The European Union, along with regional states such as Oman and Kuwait that fear potential crossfire, will encourage the United States and Iran to de-escalate their standoff and offer a way out in case hostilities ramp up. The United States will consider the possibility of talks and of extending limited oil-for-food offers to keep a lid on further Iranian aggression, but comprehensive negotiations will not begin in the quarter. To learn more about Iran's strategy in facing down the United States, check out this assessment.

Tehran's activities will increase the risk of a U.S. military response, but Trump will remain reluctant to stoke a major Middle Eastern conflict in the runup to the 2020 U.S. presidential election, a reticence that Iran shares.

Israel Strikes Its Enemies, Stoking Regional Conflict

Despite internal political turmoil, Israel will continue to strike Iranian targets and allies throughout the region, especially in Syria, Iraq and Lebanon. The attacks will expose Israel to the risk of retaliation by Iranian proxy forces. They will also destabilize the already fragile Lebanese and Iraqi states, empowering domestic forces in Iraq that want the United States to leave the country.

Israel will calculate that Washington will back its campaign, but support may decline if it threatens to drag the United States into a war with Iran. As a new Israeli government emerges, containing Iran will remain the country's paramount foreign policy issue, though its approach to security threats in the Lebanese, Syrian, Iraqi or Yemeni proxy theaters, or the more immediate Gaza and West Bank, could evolve. This Stratfor analysis examines the role Iraq could play in the Middle East's next conflict.

The Southern Front Intensifies in Yemen

In Yemen, fissures will spread among the Saudi-led coalition engaged in the anti-Houthi offensive as a partial Emirati withdrawal from the front lines weakens its ability to focus on the threat posed by the rebel movement. Meanwhile, the nominally allied Southern Transitional Council will move against the U.N.-backed administration of President Abd Rabboh Mansour Hadi, demanding greater autonomy and political guarantees in pursuit of the council's long-standing goal of restoring an independent South Yemen. Less concerted pressure on the Houthis will give them leeway to continue attacking strategic Saudi targets, while more coalition infighting will give jihadists in the south greater opportunity to flourish. Despite the strain on the anti-Houthi coalition, the Emirati-Saudi divergence in Yemen will not affect their alignment in other theaters. Read on for more about the implications of South Yemen's drive for renewed independence.

Turkey Seeks a Balance in Northern Syria 

The Syrian regime and Russia will challenge Turkish plans in northwestern Syria, and Ankara's desires in northeastern Syria face U.S. opposition. In the northwest, Turkey will seek face-saving measures as its influence steadily diminishes in Idlib as an intermittent Syrian offensive supported by Russia and Iran threatens to touch off a major diplomatic crisis between Turkey and Russia. In northeastern Syria, Turkey will lobby the United States to create a larger buffer zone against the U.S.-allied Syrian Democratic Forces, but it will not risk a second crisis with the United States. Turkey's need to drum up domestic nationalist sentiment as a stagnant economy threatens the ruling Justice and Development Party (AKP) will continue to influence its actions in Syria.

Sluggish consumer sentiment, a weak lira and an economy vulnerable to external shocks — including the ever-present threat of EU and U.S. sanctions — is accelerating a new split within the AKP. In its bid to retain power and maintain party cohesion, the AKP will make full use of its institutional advantages — including control over the central bank, the parliament and the judiciary — to fend off further defections to a budding rival party during the quarter. See Stratfor's recent assessment about how Turkey's president is fighting to keep the country's opposition off balance.

Saudi Economic Struggles Continue

Like other Gulf Cooperation Council states struggling amid lackluster oil prices, Saudi Arabia will draft a 2020 budget that expands spending after a difficult year trying to make a dent in its budget deficit. The kingdom will also intensify preparations for the limited initial public offering of Saudi Arabian Oil Co. (Saudi Aramco), the state-backed energy giant, to generate capital for diversifying the country's oil-dependent economy. But investor concerns over the security of the firm following the massive Sept. 14 Abqaiq and Khurais facility attacks will delay these efforts. Given the political barriers to listing abroad, such as transparency requirements about sensitive issues like Saudi Aramco's finances and the kingdom's energy reserves, Riyadh will make preparations to list 1 percent of the energy giant's shares on its domestic Tadawul stock market by the end of the year. While it will discuss the listing with banks, it will hold off on an international IPO listing during the quarter. Click here to see why Saudi oil facilities present such an appealing target for Iran.

Additional Forecasts

These Stratfor assessments provide additional insights for the quarter

Key Dates to Watch

  • Oct. 1: A new Israeli Knesset is expected to be sworn in.
  • Oct. 1-2: An Israeli court holds a pre-indictment hearing for Benjamin Netanyahu in ongoing corruption cases.
  • Oct. 6: Tunisia holds parliamentary elections.
  • Oct. 6-23: The window for the second round of Tunisia's presidential elections.
  • Oct. 13-18: The Financial Action Task Force Plenary meets in Paris, where Iran could face resumed sanctions over money laundering.
  • Oct. 30: U.S. sanctions exemptions on Iran's nuclear program expire.
  • Oct. 31-Nov. 14: A possible window opens for the next Israeli prime minister to select and form a new government.
  • Nov. 5: Iran's self-imposed deadline to breach further restrictions of the nuclear deal expires.
  • Dec. 12: Algeria will possibly hold presidential elections.
  • December: The GCC meets for its annual summit following member states' likely approval of their respective budgets.

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South Asia

Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders. The Himalayan Mountains form the northern border of South Asia, whose two main rivers, the Indus and the Ganges, support the region’s great population centers. India is the region’s dominant country, home to the world’s fastest growing economy. But its rivalry with neighboring Pakistan, a fellow nuclear power and growing consumer market, has made South Asia one of the world’s most dangerous nuclear flashpoints. The region is also a testament to how militancy and militarism can undermine the regional integration needed to unleash higher economic growth.

5 MINS READSep 19, 2019 | 16:31 GMT
Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders.

Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders.

Key Trends for the Quarter

An Election and Continued Fighting in Afghanistan

Presidential elections on Sept. 28 and their contentious aftermath will dominate Afghan politics in the fourth quarter as the government tries to consolidate the country's democracy and project a unified front in the face of the Taliban insurgency. Pakistan, the Taliban's main external sponsor, will push the militant group to resume talks with Kabul in a long-term bid to cultivate an Afghan government that will be an ally. Russia and China will push for a negotiated settlement to mitigate the transnational extremist threat to regional stability.


The Afghan peace process will involve many difficult stages before the war truly ends. Though U.S. President Donald Trump has suspended U.S.-Taliban dialogue for now, both sides prefer a political settlement, suggesting that talks will resume eventually. The Taliban's position that U.S. forces begin to withdraw before they will make concessions — a widely popular idea among an otherwise fractious movement — is unlikely to change. This means, ultimately, that the 18-year war will continue throughout the quarter. For more on where Afghanistan is headed, take a look at this Stratfor assessment.

Kashmir Drives the India-Pakistan Wedge Deeper

Kashmir, long the main source of conflict between India and Pakistan, will continue as a point of contention — only this time, the regional dynamic has fundamentally changed. Indian Prime Minister Narendra Modi's Aug. 5 decision to revoke Jammu and Kashmir state's autonomy — providing a distraction from India's deepening economic malaise — will bolster his domestic political standing in the quarter. But the reaction in Kashmir itself will deprive the region's mainstream political parties of support in favor of the All Parties Hurriyat Conference, an influential bloc of separatist organizations that has long shunned elections. Protests will persist, and the proportion of local residents (as opposed to foreign fighters) involved in the insurgency could increase, reducing Pakistan's control over violent separatists. India, however, will still likely hold Pakistan responsible for any high-casualty attacks in Kashmir, despite both sides' desire to keep their conflict limited to occasional tit-for-tat exchanges across its disputed border.

Modi's plan is to encourage Indians from outside Kashmir to move there, thereby diluting the region's Muslim majority and strengthening the ruling party.

In October, India's Supreme Court will evaluate the legality of stripping Kashmir of its autonomy. That same month, the Indian government will use an investor conference to showcase business opportunities in Kashmir as it pushes for more investment there, all as it continues vigorous counterinsurgency operations. Both actions fit into Modi's plan to encourage Indians from outside Kashmir to move there, thereby diluting the region's Muslim majority and strengthening the ruling party's presence.

Click here to learn more about Modi's grand plans for Kashmir.

Jolting a Cooling Indian Economy 

For Modi, boosting economic growth will be the paramount domestic challenge in the fourth quarter. The Reserve Bank of India will offer at least one more rate cut in an effort to boost the country's consumption-dominated economy. Reviving flagging shadow banks — semi-regulated institutions that typically raise funds by borrowing from regular banks rather than from customer deposits — and the slumping auto sector will remain government priorities for the quarter. 

India will advance its mix of investment in infrastructure projects in Bangladesh, Sri Lanka, Bhutan, Nepal and the Maldives to preserve its influence in the face of China's massive Belt and Road Initiative.

India will work to avoid worsening its trade dispute with the United States, aiming instead to seal a partial trade deal as a first step toward addressing Washington's deeper concerns pertaining to New Delhi's policies on data localization, e-commerce, intellectual property and market access, all of which hinder U.S. investment in India. 

Closer to home, India will advance its mix of investment in infrastructure projects in Bangladesh, Sri Lanka, Bhutan, Nepal and the Maldives to preserve its influence in the face of China's massive Belt and Road Initiative. A Chinese-Indian summit in October will give leaders an opportunity to discuss shared interests, including efforts to maintain calm on their disputed border and finalize the Regional Comprehensive Economic Partnership.

See what challenges India's economy is facing in this Stratfor assessment.

In Pakistan, Kashmir and the Economy Come to the Fore

Reversing Pakistan's economic slowdown will be Prime Minister Imran Khan's primary domestic challenge in the fourth quarter. High inflation, as well as high fiscal and current account deficits, will necessitate adherence to International Monetary Fund-recommended measures to dampen demand, including monetary tightening, exchange rate depreciation and reduced public spending. At the same time, Islamabad will pursue an aggressive tax collection drive to decrease its deficit.

Pakistan's opposition will try to turn this economic pain to its own political gain, but Khan will seek to deflect this move by highlighting Kashmir's plight and advancing an anti-corruption campaign aimed at key opposition leaders. Nevertheless, Pakistan's sluggish economy and constraints on military spending will check any temptation to engage India militarily, though public opinion will force Pakistan to respond to any Indian military action against it. Khan will try to draw foreign mediators into the Kashmir dispute, but India will reject this in favor of a bilateral approach.

Read on for more on the economic problems with which Pakistan's prime minister must contend.

Additional Forecasts

Editor's Notes

Key Dates to Watch

  • Oct. 11-13: Modi hosts Chinese President Xi Jinping in India for their second informal summit.
  • October: Bangladeshi Prime Minister Sheikh Hasina visits India.
  • October: Indian state assembly elections occur in Haryana.
  • October: The Reserve Bank of India convenes for an interest rate meeting.
  • Nov. 9: The two-month window for Sri Lankan presidential elections opens.
  • December: The Indian state of Jharkhand goes to regional assembly elections.
  • December: The Reserve Bank of India holds an interest rate meeting.
  • December: India's parliaments begins its winter session.

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Americas

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.
6 MINS READSep 20, 2019 | 16:36 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

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

Argentina's Dual Crises Deepen

Political and economic crises will intensify in Argentina during the fourth quarter as President Mauricio Macri's fragile government desperately tries to restore confidence in the economy and prevent the peso from devaluing further against the U.S. dollar. But Macri will be fighting an uphill battle, especially since voters, investors and businesses expect his main rival, the populist Alberto Fernandez, to win the October presidential election and take office in December.

Buenos Aires will likely try to boost consumption with new rounds of public spending and subsidies ahead of the elections, but these measures will worsen Argentina's fiscal deficit without increasing economic activity quickly enough to persuade voters to reelect Macri. In the meantime, the administration may need to tighten controls to contain capital flight and prevent the peso from a further slide, which could lead to the reemergence of a black market for dollars. Under these circumstances, an official default (some already consider Argentina to be in a partial default) during the quarter is possible. These developments will threaten the continuity of the agreement between Argentina and the International Monetary Fund, which could refuse to deliver the next tranches of a bailout program due in late September. And if Fernandez becomes president, his government will likely push for a renegotiation of the deal. Read on for more about the economic woes Argentina faces.
 

Mercosur in Jeopardy as Brazilian Reforms Proceed

Economic considerations will dominate Brazil in the fourth quarter. A Fernandez victory in Argentina will create significant friction with the Brazilian government as the two countries proceed down starkly different economic paths. A financially struggling Argentina will be more likely to revert to protectionism, undercutting efforts by the Common Market of the South (Mercosur) to liberalize its trade policies. In response, Brazil could threaten to withdraw from the trade bloc altogether.

The U.S. Seeks to Exploit Venezuelan Fissures

A prolonged stalemate in political negotiations and a deepening economic crisis will mark the fourth quarter in Venezuela. The United States will continue to dangle amnesty offers before high-level Venezuelan officials to exploit the deep fissures in President Nicolas Maduro's government. Washington will also face a critical deadline on Oct. 25, when it must once again decide whether to extend waivers allowing Chevron — the sole remaining Western international oil company in the country — and its partners to continue to do business in Venezuela or end the waivers and risk the expropriation of Chevron's assets and their likely transfer to Russian and Chinese companies. If the White House chooses not to extend the waivers, it will likely expand secondary sanctions on Venezuela to raise the costs for U.S. rivals to do business there. This Stratfor assessment delves deeper into Venezuela's economic problems.

Colombian President Ivan Duque will lobby the White House for increased security and intelligence support as the potential increases that Colombian security forces will pursue fleeing militants into Venezuela.

A Resurgent Militant Threat in Colombia 

Like Brazil, Colombia is experiencing heavy refugee flows from Venezuela, which will pose an acute security threat this quarter. Colombian President Ivan Duque's ongoing efforts to scupper a 2016 peace deal with the Revolutionary Armed Forces of Colombia (FARC) have driven former senior FARC leaders and their followers into exile in Venezuela, where they enjoy safe haven and have proclaimed a return to armed struggle in alliance with the National Liberation Army. As the new dissident group works to attract recruits and build alliances, Bogota will try to exploit turf wars, work with paramilitary groups and expand military operations to contain the rising militant threat. Duque will lobby the White House for increased security and intelligence support as the potential increases that Colombian security forces will pursue fleeing militants into Venezuela. Companies operating in rural areas will face a higher overall security threat.

For more on the possible return of militancy to Colombia, take a look at this article.

The Brazilian government retains strong momentum to forge ahead with a privatization drive, including plans to sell stakes in power utility Eletrobras, oil firm Petroleo Brasileiro and major state banks

The political shift in Argentina could also derail the ratification of a Mercosur-EU free trade agreement — a pact that is already under pressure given concerns by several EU governments over the deal's environmental provisions. Nonetheless, Brazil is likely to remain on an aggressive pro-business reform path. President Jair Bolsonaro and the country's Congress are each trying to claim credit for the country's reform push. Meanwhile, the government retains strong momentum to forge ahead with a privatization drive, which includes plans to sell stakes in state power utility Eletrobras, state-owned oil firm Petroleo Brasileiro and major state banks. Congress will also debate tax reform in a process that will likely extend beyond the quarter. For more on how Argentina's polls could affect the future of Mercosur, see this assessment.

Continued U.S. Pressure on Mexico

During the fourth quarter, the United States will consider insisting that Mexico sign a "safe third country" agreement if migrant flows into the United States increase, setting up a potential showdown between presidents Andres Manuel Lopez Obrador and Donald Trump. Given the heavy political, legal and economic costs of such an agreement for Mexico, Trump will keep alive an implicit tariff threat to act as leverage. The White House will calculate that it has some political and economic room to maneuver while the U.S. economy is still on relatively strong ground heading into 2020. But slowing industrial activity in China and Europe, the ongoing U.S.-China trade war, and the lingering threat of a trade disruption in North America will depress investor sentiment and raise concerns of a U.S. economic slowdown. Mexico would fall into a deep recession if the United States imposed tariffs, therefore leaving it no choice but to at least go through the motions of trying to change its asylum policies.

Click here to learn more about the pressure Mexico faces from the United States.

Additional Forecasts

These Stratfor forecasts provide additional insights for the quarter

Key Dates to Watch

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Eurasia

Eurasia is the world’s most expansive region. It connects the East to the West, forming a land bridge that borders Europe, the Asia-Pacific, the Middle East and South Asia. Forming the borders of this massive tract of land are the Northern European Plain, the Carpathian Mountains, the Southern Caucasus Mountains, the Tien Shan Mountains and Siberia. At the heart of Eurasia is Russia, a country that throughout history has tried, to varying degrees of success, to extend its influence to Eurasia’s farthest reaches — a strategy meant to insulate it from outside powers. But this strategy necessarily creates conflict throughout Russia’s borderlands, putting Eurasia a near constant state of instability.

6 MINS READSep 20, 2019 | 19:09 GMT
Eurasia connects the East to the West, forming a land bridge that borders Europe, the Asia-Pacific, the Middle East and South Asia.

Eurasia connects the East to the West, forming a land bridge that borders Europe, the Asia-Pacific, the Middle East and South Asia.

Key Trends for the Quarter

Russia Goes Global in Diversifying Its Ties

Russia will seek to solidify and expand its global diversification strategy in the fourth quarter, with a particular focus on China and Iran. Russia will increase trade ties — especially agricultural exports — with China, while December's opening of the Power of Siberia natural gas pipeline will deepen their energy ties. Moscow and Beijing are also likely to expand the size and scope of their joint military exercises, both bilaterally and as part of the Shanghai Cooperation Organization, in addition to increased joint consultations in cybersecurity and protest management. Meanwhile, Russia will support Iran, which will sign a free trade agreement with the Moscow-led Eurasian Economic Union in October, as it faces more U.S. economic pressure. In all, Moscow will help Tehran evade sanctions, support relief mechanisms like the Instrument in Support of Trade Exchanges (Instex), and increase trade ties. The two countries will also expand their military cooperation by staging joint naval exercises in the Indian Ocean, but Moscow will not go so far as to extend security guarantees to Iran against the United States, thereby preventing a broader Russia-U.S. clash over the Islamic republic.

Moscow will also provide economic and security support to Venezuela's government as it staggers under U.S. pressure. Russian oil giant Rosneft's backing will be key in marketing Venezuela's crude exports despite the threat of U.S. secondary sanctions. Further, Russia will strengthen its military and technical support for Venezuela's armed forces with weapons and systems maintenance, both of which will facilitate the endurance of President Nicolas Maduro's government.

Elsewhere, Africa will be a focal point for Russia in the fourth quarter, with the first Russia-Africa forum convening in Sochi in October. The gathering will enable Russia to build on its existing security and economic relationships in Africa and enhance its position as a major player on the continent, although the United States will seek to deter any sensitive military deals by threatening new sanctions against the Kremlin. In Afghanistan, a potential peace deal will encourage Moscow to strengthen its relations with the Taliban, which, in turn, will help Russia shape the new political climate in the country and mitigate any worries associated with the potential spillover of militancy.

This Stratfor assessment further explores the outlook for Russia-China ties within the great power competition.

The U.S. Raises the Sanctions Heat on Russia

Over the fourth quarter, the United States will expand sanctions against Russia, likely by adding Russian officials and entities to its sanctions list because of their connections to eastern Ukraine, Venezuela and Iran. Washington could also target Russian bank operations and foreign investment in Russian energy projects.

Given that Nord Stream 2 is already more than 75 percent complete, U.S. sanctions would only likely delay, not derail, the project.

One likely U.S. target in the fourth quarter is Russia's Nord Stream 2 natural gas pipeline to Germany. The Protecting Europe's Energy Security Act working its way through the U.S. Congress would sanction the pipe-laying vessels participating in the pipeline's construction. But given that Nord Stream 2 is already more than 75 percent complete, U.S. sanctions would only likely delay, not derail, the project. The key player in any possible delay will be Denmark — the only country that has yet to allow Russia to construct the pipeline through its exclusive economic zone. If Copenhagen doesn't grant approval by October, Russia is unlikely to complete Nord Stream 2 by the end of the year, pushing up construction costs and exposing project participants to U.S. sanctions. But regardless of when Nord Stream 2 comes online, Russia will adopt a more conciliatory position to renew a European Union-mediated natural gas transit agreement with Ukraine before the current deal expires at the end of December. Click here for more about the outlook of Ukraine-Russia natural gas transit talks.

Russia Manages Its Structural Challenges

Amid the ever-present sanctions threat and weak global energy demand, Russian economic growth will stagnate this quarter. Nevertheless, Moscow can manage the situation because it has padded its budget surplus, foreign exchange reserves and wealth funds while divesting itself of large dollar reserves and increasing non-dollar trade with countries like China and India. As long as oil prices remain above $40 per barrel, Russia will avoid an acute economic crisis in the quarter.

Politically, Russia will manage internal dissent and street protests through a combination of bargaining with less radical demonstrators, working with systemic opposition groups such as the Communists and Liberal Democratic Party of Russia, and cracking down on more vociferous opposition figures like Alexei Navalny. This will enable Moscow to avoid major instability on the homefront and concentrate on its standoff with Washington. Read more about Russia's economic outlook amid prolonged sanctions here.

The U.S.-Russia Military Buildup Intensifies

Following the collapse of the Intermediate-Range Nuclear Forces (INF) treaty, the United States and Russia will accelerate the development and testing of missiles that previously violated the treaty. Nevertheless, the countries will not deploy these missiles to forward positions in the fourth quarter, while Russia will only react to any U.S. missile deployments in Europe or Asia, rather than aggressively pursuing its own. In the meantime, the U.S. decision to expand its military presence in Poland will compel Russia to pursue its own military buildup, both at home and in neighboring Belarus, putting the European borderlands on heightened security alert. Find out more about the ripple effects of the demise of the INF treaty in Europe in this assessment.

Additional Forecasts

These Stratfor assessments provide additional insights for the quarter

Key Dates to Watch

  • October: The Normandy Four meets for a summit on Ukraine.
  • October: Denmark could grant Russia permission to complete the Nord Stream 2 pipeline in its exclusive economic zone.
  • October: Russian President Vladimir Putin visits Saudia Arabia.
  • Oct. 24: The Russia-Africa forum takes place in Sochi, Russia.
  • Oct. 26: Iran joins a free trade area with the Eurasian Economic Union.
  • Oct. 31-Nov. 1: The prime ministers of the Shanghai Cooperation Organization gather in Tashkent, Uzbekistan.
  • Nov. 17: Belarus holds parliamentary elections.
  • December: Russia and Belarus look to sign an economic integration road map.
  • Dec. 22: Uzbekistan holds parliamentary elections.
  • Dec. 31: A natural gas transit agreement between Ukraine and Russia expires.
  • End of 2019: Barring delays, the Nord Stream 2 starts delivering natural gas.
  • End of 2019: The TurkStream natural gas pipeline is scheduled to come online.
  • End of 2019: The Power of Siberia pipeline begins operations.

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Sub-Saharan Africa

Sub-Saharan Africa is a study in diversity. Covering an area that spans the entire width of the continent beginning at the Sahara Desert and ending at the southernmost tip of South Africa, the region is home to countless cultures, languages, religions, plants, animals and natural resources. It’s no surprise that it captured the imagination of Europe’s earliest explorers — and that it continues to capture the imagination of current world powers eager to exploit it. And yet despite the region’s diversity, Sub-Saharan African countries have common challenges — transnational terrorism, rapid population growth, endemic poverty and corruption — that prevent them from capitalizing on their economic potential. The coming years will be critical for the region, especially as its political institutions mature in a rapidly globalizing world.

6 MINS READSep 20, 2019 | 20:16 GMT
Covering an area that spans the entire width of the continent beginning at the Sahara Desert and ending at the southernmost tip of South Africa, Sub-Saharan Africa is home to countless cultures, languages, religions, plants, animals and natural resources.

Covering an area that spans the entire width of the continent beginning at the Sahara Desert and ending at the southernmost tip of South Africa, Sub-Saharan Africa is home to countless cultures, languages, religions, plants, animals and natural resources.

Key Trends for the Quarter

The Shadow of Power Outages Looms in South Africa

High demand amid the summer heat will precipitate power outages that limit economic growth in South Africa in the fourth quarter. Worker unions at the public electric utility Eskom as well as factions in the ruling African National Congress will continue to oppose reforms at the company that involve privatization and job losses, limiting President Cyril Ramaphosa's options for halting its deterioration.

Credit agency Moody's, the last of the big three agencies not to downgrade South Africa's credit rating to junk status, will reassess its position in November.

The diversion of billions of dollars to shore up Eskom has left the government no choice but to address its debt problem or deal with the consequences. Credit agency Moody's, the last of the big three agencies not to downgrade South Africa's credit rating to junk status, will reassess its position in November. While global markets already consider South Africa's bonds as junk, a Moody's downgrade would force fund managers with investment-grade mandates to dump remaining South African debt, accelerating ongoing foreign investment outflows. 

In October, the legislature will debate a worrisome topic for investors: land expropriation without compensation. While Ramaphosa and his allies will seek expropriation in a few limited cases, populist factions in the ANC and the far-left Economic Freedom Fighters will push for more drastic seizures, increasing investor fears over the country's direction. Meanwhile, failures to improve economic growth have dire implications beyond the fourth quarter for Pretoria, as skilled laborers and individuals with high net worth flee the country, hurting growth in sectors like health care and professional services and increasing unemployment and crime. For more on South Africa's worsening situation, check out this analysis.

Ethiopia Contends With Growth Challenges and Key Votes

Negative economic indicators, including high inflation, foreign exchange shortages and decreasing exports, will compel the Ethiopian government in the fourth quarter to proceed with its liberalization push to spark greater private-sector growth. Moves toward the full or partial privatization of state-owned enterprises will eventually ease foreign debt and improve efficiency. Better roads between Ethiopia and Eritrea should also facilitate the movement of goods once the latter opens border crossings. These changes, however, will not noticeably improve the economy in the fourth quarter, adding to the governing coalition's burden ahead of contentious elections in 2020.

Politics will be increasingly volatile in the fourth quarter as elections approach. This will slow Ethiopia's efforts to promote regional integration during the quarter and into 2020 as Prime Minister Abiy Ahmed works to guarantee his political survival. On Nov. 13, Ethiopians will vote on whether to grant the Sidama people their own state. Violence in the weeks surrounding the Sidama referendum is likely. Hawassa, an important city in the heart of Sidama, will be especially vulnerable, putting nearby industrial parks and supply chains in jeopardy. Whatever the vote's outcome, it could inspire numerous other ethnic groups to seek their own states, potentially triggering more interethnic violence in the immediate aftermath of the poll and perhaps for weeks thereafter. For more on Ethiopia's transition, read the following analysis.

Transitional Government Institutions Take Root in Sudan

Transitional institutions will continue to solidify in Sudan following agreements between military and civilian stakeholders and the appointment of a sovereign council and Cabinet during the third quarter. While the Cabinet will begin exercising its powers and members of the civilian opposition will take their place in a new legislative body, Sudan's military will maintain its strong position as it tries to influence the transitional process in the fourth quarter and beyond.

Relative stability during the fourth quarter — and the continued support of foreign benefactors — means economic conditions could start to improve in Sudan.

The Cabinet will initially focus on remedying Sudan's dire economic situation. Minor standoffs over policy between military and civilian members of the sovereign council may emerge, particularly with regard to the funding and structure of the security forces, but this is unlikely to severely disrupt the transitional agreement in the fourth quarter. The technocratic Cabinet, which is led by an economist, will likely take a pro-business stance in initial policies.

Relative stability during the fourth quarter — and the continued support of foreign benefactors — means economic conditions could start to improve. Sudan's allies, particularly Saudi Arabia and the United Arab Emirates, will approve of these developments. Civilian representatives will likely tread carefully around issues that matter most to those backers, such as security ties or economic interests, to avoid blowback from Sudanese military representatives in the transitional bodies. This, plus the need for external financial support, means Khartoum will continue to become more engaged with the region during the quarter. For more on Sudan's post-Omar al Bashir transition, see the following analysis.

Relative stability during the fourth quarter — and the continued support of foreign benefactors — means economic conditions could start to improve. Sudan's allies, particularly Saudi Arabia and the United Arab Emirates, will approve of these developments. Civilian representatives will likely tread carefully around issues that matter most to those backers, such as security ties or economic interests, to avoid blowback from Sudanese military representatives in the transitional bodies. This, plus the need for external financial support, means Khartoum will continue to become more engaged with the region during the quarter.

For more on Sudan's post-Omar al Bashir transition, click here.

Additional Forecasts

These Stratfor assessments provide additional insights for the quarter

Key Dates to Watch

  • October: South Africa's parliament begins debating a bill that would permit land expropriation without compensation.
  • Oct. 15: Mozambique holds general elections.
  • Oct. 24: The first-ever Russia-Africa forum occurs in Sochi, Russia.
  • November: Moody's reassesses South Africa's credit rating.
  • Nov. 13: Ethiopia conducts a referendum on statehood for Sidama.
  • December: Summer heat is likely to strain South Africa's unstable electrical grid.
  • December: In Ethiopia, a self-imposed deadline expires regarding the issuance of telecommunications licenses to foreign multinationals. Depending on Addis Ababa's decision, EthioTelecom's long monopoly over the market could end.

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