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Europe

 The last quarter of 2020 will be a waiting game -- waiting for the results of the U.S. election in November, waiting on economic numbers, and waiting to see how the COVID-19 crisis plays out.

Quarterly

Global Trends

<p>The course of the global economy in Q4 will be determined by noneconomic factors including the course of the COVID-19 pandemic and continued efforts to mitigate it; development and distribution of a vaccine; and political issues and uncertainty surrounding U.S. elections, <a href="/article/why-eu-uk-trade-talks-feel-brexit-deja-vu">Brexit</a>, and possible renewed trade tensions. China is likely to be the only large economy that sees positive GDP growth in 2020, but at a historically <a href="/article/chinas-economic-recovery-continues">disappointing 1-2 percent</a>. Other advanced economies and many emerging markets will go into recession for 2020, with many having strong positive growth from a low base in Q3 and a <a href="/article/us-economic-recession-grows-deeper-and-bleaker">deceleration in Q4</a>.</p><p>A reinstatement of national lockdowns is unlikely, and mitigation will be restricted to local and regional lockdowns as occurred in Q3. Consumption and business viability under these conditions depend on government support and the political will to absorb swelling budget deficits and <a href="/article/conflicting-data-muddies-us-economic-outlook">burgeoning public sector debt</a>. Government job retention and income support schemes have done the most to buoy global consumption, but pent-up <a href="/article/worst-global-recession-80-years-here-where-s-bottom">demand is slowing</a> and precautionary savings are increasing for households that still have incomes.&nbsp;</p><p>In Europe and the United States, employment recovery may be plateauing as productivity increases lag, business investment is tepid or there is even net disinvestment, and many businesses lack the ability to return to profitability. Such permanent scarring and uncertainty will remain and may retard recovery versus a rebound for many economies until well into 2022, with permanent pullbacks in consumption and investment.</p>

<p>Global trade is recovering and global financial conditions have rebounded from their flight to safety in Q1 and early-Q2. Major central banks have kept interest rates close to or below zero, flooding markets with liquidity, but their ability to go further is limited. &quot;Lower for longer&quot; interest rates in the U.S. and Europe as the Fed and European Central Bank try to rekindle inflation through &quot;financial repression&quot; will keep public sector debt affordable. Robust fiscal policies in advanced economies will support activity in Q4, but stimulus in many emerging markets will be constrained by a lack of policy space that will slow further their recovery.<br />&nbsp;</p><p>&nbsp;</p>

Global Economy Still Affected by COVID-19

<p>Several emerging markets remain vulnerable with outsized external financing needs. Capital flows that recovered in Q3 could reverse, again particularly in countries seen as pursuing policies that undermine economic fundamentals and balance-of-payments buffers that increase exchange rate volatility.</p><p>Revenue losses from weak economic activity and plunging exports as commodity prices remain low, weak tourism receipts, and the need for stimulus will widen primary fiscal deficits in nearly all EMs. Several, including Brazil, Chile, Colombia, India, Indonesia, the Philippines, South Africa, Romania, Saudi Arabia and Thailand will see debt as a percentage of GDP increase by 10 percent or more, although low debt-to-GDP ratios for Chile (36 percent), the Philippines (45 percent), Saudi Arabia (33 percent) and Thailand (46 percent) will buffer financial and balance of payments pressures.</p><p>Exchange rate effects will be somewhat limited for countries that have contained depreciations or where foreign currency debt and domestic liabilities are modest. Exceptions are countries expected to have relatively large current account deficits and a high proportion relative to foreign exchange reserves of debt due over the short-term plus internal foreign currency liabilities. Those include <a href="/article/argentinas-new-debt-deal-just-first-step-its-recovery">Argentina</a> (312 percent, despite the $65 billion bond exchange), Ghana (163 percent), South Africa (105 percent), Turkey (263 percent), Sri Lanka (200 percent), Ukraine (205 percent), and Zambia (190 percent). Any could see sudden stops in capital flows or capital outflows if monetary policy easing is seen as counterproductive to economic prospects.</p><p>For the 73 poorest countries eligible for the G-20 debt service suspension initiative, fewer than 40 have requested assistance from the Paris Club and <a href="/article/reading-fine-print-angola-s-debt-restructuring">fewer than a dozen</a> have gotten relief from China. Most countries borrowing in eurobond markets have not requested DSSI treatment. The G20 is expected to continue the initiative into 2021 and possibly for the entire year.</p>

Some Emerging Markets Have Heightened Risks

<p>The United States will continue its <a href="/article/limits-us-china-financial-divorce">aggressive strategy</a> against China and implement visa and travel restrictions on diplomats, increase export controls on Chinese tech companies, and increase trade restrictions on China. Such moves will be taken in response to China&#39;s activities in the South China Sea, human rights concerns in Xinjiang and Beijing&#39;s Hong Kong policy on top of the <a href="/article/us-broadens-its-tech-battle-china">broader tech war</a> against China. The expansion of U.S. efforts will reverberate across the tech sector as foreign companies will be forced to reduce business relationships with sanctioned entities and companies targeted by export controls.&nbsp;</p><p>The phase one trade deal with China will likely survive through U.S. elections as Trump seeks to use it as an example of the success of his policy &ndash; but after the election, he will not be encumbered by such concerns. In the event of Trump losing the election, U.S. policy towards China could become even more aggressive as outgoing China hawks in the administration, such as Secretary of State Mike Pompeo, seek to cement their legacy of a tough approach toward China.&nbsp;<br />&nbsp;</p>

The United States Continues its Hard-Line Policy on China

<p>The U.S. attempt to extend the U.N. <a href="/article/us-snaps-back-iran-and-un-restored-sanctions">arms embargo on Iran</a> when it expires Oct. 18 will fail to get recognition from much of the international community, including the other permanent members of the U.N. Security Council in hopes of keeping Iran inside the Joint Comprehensive Plan of Action. In practice, any resumption of arms sales to Iran will likely be limited in scope and even symbolic, with delivery dates years out so as to avoid U.S. sanctions. Nevertheless, the United States will remain undeterred this quarter and maintain its heavy sanctions strategy against Iran. This strategy will intensify if Trump loses the November election since as with China, Iran hawks within the administration will seek to cement their legacy &mdash; in this case by complicating any future talks between Iran and the United States through even tougher sanctions targeting the higher echelons of the Iranian military and political system.&nbsp;<br />&nbsp;</p>

U.S. Calls to Extend Arms Embargo on Iran Fail, but Arms Sales Do Not Follow

<p>Turkey will continue its <a href="/article/whats-driving-turkish-aggression-mediterranean-sea">aggressive actions</a> in the Eastern Mediterranean driving the European Union &mdash;driven by Cyprus, France and Greece &mdash; to implement increased sanctions against Turkey. Sanctions, however, will remain limited in scope, and will not broadly target the Turkish economy or financial system. Instead, their narrow focus will target Turkish executives, specific companies and officials. Nevertheless, intense mediation led by Germany will be needed to avoid a significant escalation. Most NATO members, including the United States, will side with Cyprus and Greece against Turkey, driving Turkish President Recep Tayyip Erdogan to continue to reduce collaboration with other NATO members, although Turkish membership is not in jeopardy.&nbsp;<br />&nbsp;</p>

Conflict Avoided in the Eastern Mediterranean, but NATO's Rift With Turkey Widens

<p>Before the end of the year, one or more of the late-stage experimental COVID-19 vaccines will have initial data from large trial groups as political pressure grows to get candidate vaccines through trial and ready for rapid distribution. This will be especially true in the United States ahead of the election. Even if an emergency approval order is issued, however, we will likely see significant pushback from the medical community in the United States over administering the vaccine, further limiting the potential for distribution before the Nov. 3 election.</p>

<p>With numerous Phase III trial candidates, China will continue to administer the vaccine to larger and larger groups of its population. Limited manufacturing capacity will hamper Beijing&#39;s ability to distribute beyond its borders and trial centers before the end of the year, though China will prioritize overseas distribution for political gain.</p>

Early Vaccine Rollouts Will be Highly Politicized and Will Meet Intense Skepticism

Asia-Pacific

<h3>Beijing&#39;s Power in Hong Kong Grows Even as Volatility Endures</h3><p>In Hong Kong, <a href="/article/beijing-moves-temper-tensions-hong-kong-extended-legislative-term">postponed elections</a> will allow Beijing and local authorities to further restrict avenues for <a href="/article/hong-kong-series-raids-and-arrests-portends-further-crackdowns">dissent in the city</a> and pursue measures to weaken pro-democracy forces. In the legislature, the threat of disqualification, potential boycotts and divisions will open an opportunity for legislation to strengthen the pro-Beijing camp. This, however, will risk a backlash in the form of protests, particularly among more extreme elements, although fear of the new national security law and the COVID-19 outbreak will dampen turnout.</p>

<p>The U.S. pressure on Hong Kong will deepen through targeted sanctions and by potentially enforcing mainland tariff levels in Hong Kong, but the White House will refrain from extreme measures such as targeting <a href="/article/hong-kongs-dollar-peg-likely-remains-safe-us-sanctions-now">Hong Kong&#39;s access to U.S. dollars</a>,&nbsp;prioritizing economic considerations. A Trump electoral loss, however, could see a turn toward a much harder line as outgoing China hawks try to cement their legacy during the fourth quarter.&nbsp;</p><h3>U.S. Pressure on China Endures, and Could Spike After the Election</h3><p>Continuing a trend that we highlighted in our third-quarter forecast, Washington will maintain its multifront pressure campaign on China through sanctions, travel and even some targeted trade restrictions <a href="/article/tech-bans-and-hong-kong-sanctions-trump-hits-china-one-two-punch">linked to Hong Kong</a>, <a href="/article/us-responds-chinas-uyghur-crackdown-more-sanctions">Xinjiang</a>, the <a href="/article/us-expands-its-south-china-sea-fight-chinese-firms-and-officials">South China Sea</a>&nbsp;and the <a href="/article/us-pressure-tiktok-prompts-chinese-show-legal-force">tech sector</a>.&nbsp;</p>

<p>U.S.-China tensions will mount incrementally on all fronts, with particularly showy moves by the White House during election season, but will be limited by the need to maintain the <a href="/article/amid-rising-hong-kong-tensions-us-china-trade-deal-hangs-thread">phase one trade deal</a>, which will remain safe up to the election. China will respond in a tit-for-tat manner, but will exercise pragmatic restraint to avoid provoking further U.S. actions, particularly ahead of elections. If Trump loses in November, the lame-duck period could see the president or members of his Cabinet behave more aggressively toward China, with hawkish measures that could kill the trade deal and implement restrictions on China that an incoming Biden administration would have trouble removing.&nbsp;</p><h3>North Korea Bides its Time Ahead of U.S. Elections&nbsp;</h3><p>The U.S.-North Korea dynamic will be quiet in the fourth quarter amid the final sprint to the U.S. election and the postelection period as Pyongyang adopts a <a href="/article/north-korea-likely-stay-course-ahead-us-election">wait-and-see approach</a> until early 2021. North Korea&#39;s regime will be preoccupied with particularly severe economic problems stemming from COVID-19&#39;s impact, flooding and continued sanctions pressure. The January 2021 Party congress will bring an opportunity for a shift in North Korea&#39;s strategic line, after which there will be an increased <a href="/article/geopolitics-and-pitfalls-provocation">likelihood of renewed testing</a> to perfect its missile systems. In the event of a Biden win, such tests would aim to draw the attention of the incoming president to North Korea&#39;s importance to avoid a return of Obama-era &quot;strategic patience.&quot; In the event of a Trump win, such testing would likely be less extreme and focus on returning the U.S. president to the negotiating table.</p><h3>COVID-19 Lingers, Hampering Regional Growth</h3><p>In the Asia-Pacific, the pandemic&#39;s primary impact will be via the worldwide slowdown in trade, which will dampen growth across the largely export-oriented economies. China&#39;s early exit from the pandemic will see it sustain its <a href="/article/chinas-economic-recovery-continues">steady recovery</a>&nbsp;as it continues to effectively keep cases down and get domestic spending on track. Vietnam&#39;s adept management of its domestic cases will position it to support continued growth even amid lower overall demand while South Korea will stand out among advanced economies with a less severe annual GDP contraction due to its effective pandemic response and early, sustained application of fiscal stimulus. Indonesia, the Philippines and Myanmar will struggle to manage their domestic outbreaks, which will sap their overall growth as they also face headwinds in their exports.&nbsp;<br />&nbsp;</p>

Key Trends for the Quarter

<p><strong>Unknown date:</strong> Malaysia may hold snap elections before the end of 2020<br /><strong>October:</strong> Japan may hold snap general elections&nbsp;<br /><strong>Oct. 1</strong>: China will celebrate National Day, which may see protests in Hong Kong&nbsp;<br /><strong>Oct. 10:</strong> The 75th anniversary of North Korea&#39;s ruling party<br /><strong>Mid-October: </strong>Hong Kong&#39;s extended Legislative Council session will begin&nbsp;<br /><strong>Mid-October:</strong> The Hong Kong Autonomy Act deadline for the White House to identify a list of individuals, followed by a November or December timeline for identifying financial institutions that work with them<br /><strong>Nov. 8: </strong>Myanmar will hold general elections<br /><strong>Nov. 17: </strong>The one-year anniversary of the siege of Hong Kong&#39;s Polytechnic University</p>

Key Dates to Watch

Middle East and North Africa

<h3>Iran Keeps Up the Pressure, but Closely Watches the U.S. Election</h3><p>Iran&#39;s economy will remain heavily burdened by sanctions, creating a <a href="/article/why-2020-could-be-year-escalation-iran-trump-saudi-israel">strong drive to retaliate</a>.&nbsp;Iran will continue increasing its nuclear activities and slowing the implementation of the Joint Comprehensive Plan of Action as it remains on the defensive <a href="/article/us-snaps-back-iran-and-un-restored-sanctions">against U.S. sanctions</a>. The intensity of Iran&#39;s reaction against the United States hinges on the U.S. election. If Trump loses in November, Iran will not escalate via nuclear posturing to avoid provoking a lame-duck president and damaging its negotiating capital with Biden in 2021. If Trump wins, Iran &mdash; with a more conservative and hawkish parliament &mdash; will sharply escalate against the United States if the Trump administration threatens military action in response <a href="/article/save-iran-nuclear-deal-europeans-trigger-process-could-end-it-france-germany-united-kingdom-jcpoa">to Iran&#39;s nuclear activities</a>.&nbsp;</p>

<h3>&nbsp;</h3><h3>Israel Will React Hawkishly if Biden Wins the U.S. Election</h3><p>Israel has two strategies to consider in response to U.S. election results: first, Netanyahu&#39;s personal political strategy to maintain power, including Israel&#39;s approach to <a href="/article/israels-annexation-plans-will-leave-it-need-new-allies">annexations in the West Bank</a>, and second, Israel&#39;s overall regional strategy against Iran.&nbsp;Both of these strategies have relied on alignment with the United States, but that alignment could be upended with a Biden victory, possibly leaving Israel with a narrow window to act on its hawkish imperatives before the U.S. changes presidents. In this case, Israel will be more likely to consider West Bank annexations in the time it has left with a friendly Trump White House despite pledges to the Emiratis in the new normalization deal. But if Trump wins a second term, Israel will be able to maintain its current West Bank policies and <a href="/article/israel-lets-us-take-lead-against-iran-now-tensions-war-conflict">Iran strategy</a> in the second half of the fourth quarter.&nbsp;</p><h3>Turkey&#39;s Financial Pressure Increases as Threat of Sanctions Materializes</h3><p>Turkey&#39;s ongoing currency crisis will risk morphing into a broader financial and banking crisis, exacerbating existing economic volatility in the country and further discouraging foreign investment. Despite the opportunity this volatility and the COVID-19 crisis opens up for the opposition to attack the ruling Justice and Development Party, Turkey&#39;s government will not reverse its <a href="/article/turkey-akp-s-covid-19-strategy-could-be-its-downfall">unorthodox economic strategy</a>.&nbsp;</p>

<p>Driven by strong nationalist and national security imperatives, Turkey&#39;s government will also stay committed to its oil and gas exploration in the Eastern Mediterranean despite <a href="/article/greece-suits-another-seafaring-standoff-turkey">intensified pressure to stand down</a> from Greece and its French, Cypriot and Egyptian allies. EU sanctions against Turkey would be unlikely to persuade Turkey to change course from its <a href="/article/whats-driving-turkish-aggression-mediterranean-sea">Eastern Mediterranean operations</a>, but they will inject uncertainty into Turkey&#39;s financial markets, feeding into the negative cycle nudging Turkey&#39;s financial situation toward greater volatility.&nbsp;</p><h3>Lebanon Will Leave Its Sectarian Foundations Untouched</h3><p>Under French and U.S. pressure and facing an increasingly unstable social situation at home, Lebanon&#39;s primary sectarian factions will implement small-scale <a href="/article/will-beirut-disaster-finally-yield-political-change-lebanon">political and economic reforms</a> to offset French sanctions threats and to receive substantial aid.&nbsp;These <a href="/article/lebanon-new-government-faces-difficult-reforms">reforms will include</a> efforts to stabilize the currency, shift ministerial power, cancel wasteful projects and restructure the electricity sector.&nbsp;</p>

<p>But these reforms will not be enough to put Lebanon on the road to reform needed to improve economic performance or <a href="/article/iraqi-and-lebanese-protesters-will-struggle-change-systems-built-resist-sectarian-patronage">stabilize its social situation</a> in the quarter. The sectarian parties will avoid new elections and stymie reforms that might dilute their power, like a new census or electoral reform.&nbsp;</p><h3>Algeria Holds a Long-Awaited Referendum&nbsp;</h3><p>Algeria&#39;s government will use a constitutional referendum on Nov. 1 to bookend the transitional period following former President Abdel Aziz Bouteflika&#39;s resignation. This will allow the government to devote energy to new initiatives like opening up for <a href="/article/covid-19-reveals-depth-algeria-s-economic-woes">more foreign investment</a>, which is contrary to Algeria&#39;s historic preference for self-reliance. Algiers will also show signs of moving toward becoming a proactive and visible diplomatic and <a href="/article/moroccan-military-drive-puts-algeria-alert">security actor in North Africa</a>, such as by issuing firmer policies on the government transition in Mali and the ongoing Libyan crisis. Algeria will undoubtedly face popular protests in the lead-up to the <a href="/article/algeria-transition-gets-electoral-litmus-test-pouvoir">constitutional referendum</a>, as many Algerian activists think the new constitutional amendments don&#39;t go far enough.&nbsp;<br />&nbsp;</p>

<p><strong>Oct. 18:</strong> U.N. Security Council arms embargo on Iran expires<br /><strong>Nov. 1:</strong> Constitutional amendment referendum in Algeria<br /><strong>Nov. 10:</strong> Slated parliamentary elections in Jordan<br /><strong>November:</strong> Slated parliamentary elections in Kuwait<br /><strong>December:</strong> Expected drafting and release of GCC state budgets</p>

<h3>Europe&#39;s Economy Will Remain Below Pre-crisis Levels</h3><p>Continuing a trend highlighted in our third quarter forecast, social distancing, lockdowns, travel restrictions and other measures to contain the COVID-19 pandemic will negatively impact Europe&#39;s economy during the fourth quarter because consumption, investment and trade will remain below pre-crisis levels. European governments will try to avoid full-scale lockdowns at the national level for as long as they can to protect the economy, but regional and partial lockdowns in areas with a high number of infections are likely, and so are <a href="/article/europe-braces-another-round-covid-19-travel-restrictions">border closures and mandatory quarantines</a> for international travelers. The impact of the pandemic will be unevenly distributed, because fragile economies in <a href="/article/southern-europe-s-covid-19-crisis-just-beginning-eu-italy-france-spain-greece-portugal-coronavirus-economy-politics">Southern Europe</a> will experience weaker economic activity and higher unemployment levels than stronger economies in the north.&nbsp;</p>

<p>EU governments will extend welfare measures (such as furlough schemes) and announce new rounds of stimulus spending to mitigate the economic impact of the pandemic, but this will come at a high cost because public debt and fiscal deficit levels will worsen across the Continent. These stimulus measures will somewhat mitigate the full economic impact of the pandemic and keep social unrest within tolerable levels during the quarter, but they will also create <a href="/article/eurozones-upcoming-financial-problems">long-term financial risks</a>, especially in Southern Europe, where sovereign debt and fiscal deficit levels were already high before the crisis. In the meantime, the European Parliament will authorize the bloc&#39;s Recovery Fund and the budget for 2021-2027. Neither of these packages will be implemented in the fourth quarter, which means that their stimulus effect on the economy will not be felt in the next three months.</p><h3>A Brexit Trade Deal Is Probable</h3><p>As we predicted in our annual forecast, the European Union and the United Kingdom will probably reach a <a href="/article/scramble-secure-eu-uk-trade-ties-amid-covid-19-coronavirus-brexit-economy-brussels">limited trade deal</a> by the end of the quarter, which will reduce the economic disruptions caused by the British exit from the EU single market in 2021. The risk of a collapse in the negotiations is considerable, however, because of London&#39;s <a href="/article/why-eu-uk-trade-talks-feel-brexit-deja-vu">challenges to the Withdrawal Agreement</a> it signed with Brussels in 2019. The United Kingdom and the European Union are interested in avoiding a no-deal British exit from the single market that would damage both economies at a time when the Continent is already in a recession because of the COVID-19 crisis. In addition, the United Kingdom will not reach a trade deal with the United States in the quarter because of differences over issues such as agriculture and food standards, which means that London will sign a deal with the European Union to avoid disconnecting from its main trading partner. But the talks could collapse if London does not abandon or at least soften its push to unilaterally modify the Withdrawal Agreement, which is meant to keep Northern Ireland aligned with EU customs and rules.&nbsp;<br />&nbsp;</p>

<p>The EU-U.K. trade deal is likely to leave several issues (such as security, energy and financial services) for future negotiation, which means that there will still be some degree of disruption in the bilateral relationship going into and at the start of 2021. Moreover, disputes over issues such as fishing rights, state aid to companies and Brussels&#39; demands for London to remain aligned with EU standards could still <a href="/article/uk-finally-making-its-brexit-whats-next-eu-brussels-trade">derail the trade negotiation</a> and result in a no-deal exit from the single market in 2021 that would force the United Kingdom and the European Union to trade under World Trade Organization rules. Even in this case, a no-deal Brexit is likely to be temporary because London and Brussels would still be interested in returning to the negotiating table.&nbsp;</p><h3>Germany Gets Ready for a Post-Merkel World</h3><p>Continuing a trend that began in the third quarter, disputes within the German government will influence the country&#39;s future position on issues ranging from fiscal policy to eurozone integration. As German Chancellor Angela Merkel enters the final year of her mandate (a general election must take place by October 2021), her conservative Christian Democratic Union and their coalition partners, the progressive Social Democratic Party, will seek to <a href="/article/ideological-divide-deepens-germanys-government">differentiate themselves</a> to voters&nbsp;on issues such as public spending and financial risk-sharing in the European Union, which will negatively impact government cohesion and efficacy.</p>

<p>The CDU will appoint a new party leader by the end of the year, forcing the party to decide between candidates that defend Merkel&#39;s centrist positions and candidates that defend tougher positions on issues such as fiscal discipline, immigration and eurozone integration. The result of this choice will affect <a href="/article/germanys-next-election-season-will-begin-period-political-turbulence">Germany&#39;s domestic and foreign policies</a> in 2021 and beyond.&nbsp;</p>

<p><strong>Oct. 2-3:</strong>&nbsp;Regional and Senate elections in the Czech Republic<br /><strong>Oct. 15-16:</strong>&nbsp;European Council summit<br /><strong>Oct. 11-25:</strong>&nbsp;Parliamentary elections in Lithuania<br /><strong>October:</strong> European Parliament to vote on a Climate Law proposed by the commission<br /><strong>October:</strong> European Parliament to vote on the EU&#39;s budget for 2021-2027<br /><strong>Dec. 31:</strong> End of the Brexit transition period<br /><strong>December:</strong> Germany&#39;s CDU to appoint a new party leader<br /><strong>December:</strong> Parliamentary elections in Romania</p>

Americas

<h3>Argentina Will Take Unsteady Steps Toward Economic Recovery</h3><p>Now that it has <a href="/article/argentinas-new-debt-deal-just-first-step-its-recovery">restructured its debt</a> with private lenders, Argentina&#39;s government will spend the fourth quarter focused on the next step toward long term sustainable growth: Starting negotiations with the IMF, something complicated by the fiscal demands of COVID-19. Regional governments will be also negotiating with private lenders during this quarter to restructure their own debt. The administration of President Alberto Fernandez will try to navigate an environment that requires the government to show a commitment to <a href="/article/argentinas-latest-default-doesnt-have-mean-another-economic-collapse">long-term fiscal discipline</a> amid increasing social demands due to the economic effects of the COVID-19 pandemic. The Fernandez administration can be expected to take a winding route as it tries to fulfill these inconsistent imperatives.&nbsp;</p><h3>Mexico Will Remain a Pliant U.S. Partner as Its Economy Struggles to Find a Footing&nbsp;</h3><p>The Mexican government will continue to be a cordial, and mostly quiet, partner of the U.S. government through the end of the year, even if the United States brings new trade disputes or if immigration becomes a focus of the U.S. presidential election. Mexico will remain inwardly focused as it seeks to recover from what is expected to be the worst recession in its history.</p>

<p>Its economy will continue to show weakness, while pressures on public finances from lower revenues and from the financial situation of state-owned <a href="/article/pemex-s-losses-deepen-mexico-s-financial-woes">Petroleos Mexicanos</a> will become more evident as the year ends. Organized criminal groups like the Cartel de Jalisco Nueva Generacion will continue to pursue territorial expansion.&nbsp;</p><h3>Fractures Among Venezuela&#39;s Opposition Will Grant Maduro More Months in Power</h3><p>Venezuela&#39;s opposition coalition will split due to differences over how to approach the upcoming National Assembly elections and counter the government of President Nicolas Maduro, giving Maduro more time in power. The opposition&#39;s legitimacy hinges on participation in the National Assembly, whose current five-year term ends in January 2021. Juan Guaido will <a href="/article/legislative-elections-risk-leaving-venezuela-s-opposition-shambles">likely refuse to participate</a> in the Dec. 6 elections for a new term, arguing they will not be free or fair.<br />&nbsp;</p>

<p>This means that after the vote, two legislative bodies will likely claim to be the legitimate National Assembly. Divisions among the opposition coalition mean Maduro will gain more time in power despite the regime&#39;s increasing inability to provide basic goods like fuel due to U.S.-imposed sanctions, which will be tightened during the last quarter of the year. Cooperation between Venezuela and Iran will extend into the fourth quarter; whether the United States makes a surprise military intervention or blockade will hinge on the state of the U.S. presidential race.</p><h3>Brazil&#39;s Public Finances Will Start Showing Signs of Strain</h3><p>November municipal elections will give the government of President Jair Bolsonaro a strong incentive to extend fiscal stimulus programs through the fourth quarter; these measures have cushioned the economic blow of the COVID-19 pandemic and maintained the president&#39;s popularity, but could raise questions about the future of the country&rsquo;s economy. The elections will reveal whether opposition to Bolsonaro is coalescing around any particular political party or figure.<br />&nbsp;</p>

<p>Meanwhile, increased public spending and debt levels will start raising doubts among investors about Brazil&#39;s longer term economic prospects. They also will add to tensions inside the government between the pro-market, reformist agenda of Finance Minister Paulo Guedes and a more protectionist wing, generating questions about the commitment of the Bolsonaro administration to economic reform.</p><h3>Chile Enters a Campaign Season That Could Be a Prelude to Big Changes</h3><p>On Oct. 25, Chile will conduct its referendum on whether to draft a new constitution, creating uncertainty with economic consequences. The referendum is likely to pass, giving rise to intense debate in the months after the October referendum on what the new charter should look like. Changes to the constitution to <a href="/article/chilean-opposition-seeks-tap-pensions-offset-economic-crisis">guarantee social programs</a> will threaten Chile&#39;s economic model that has kept it business-friendly and economically successful over the past three decades. Uncertainty about what the new constitution could look like will affect the chances of an economic recovery this year.<br />&nbsp;</p><p>&nbsp;</p>

<p><strong>Oct. 18:</strong> First round of Bolivia&#39;s presidential and congressional election<br /><strong>Oct. 25:</strong> Chilean referendum on whether to draft a new constitution<br /><strong>Nov. 3:</strong> Presidential elections in the United States<br /><strong>Nov. 15:</strong> First round of Brazilian municipal elections<br /><strong>Nov. 29: </strong>Second round of Bolivia&#39;s presidential and congressional election (if needed) and Brazil&#39;s municipal elections (also if needed)<br /><strong>Dec. 6: </strong>Venezuela&rsquo;s National Assembly elections<br />&nbsp;</p>

Eurasia

<h3>Efforts to Complete Nord Stream 2 Will Face Continued Opposition</h3><p>Tensions over the completion of the Nord Stream 2 gas pipeline will rise in the fourth quarter as Gazprom seeks to resume construction and U.S. and EU sanctions threats cast doubt on the project&rsquo;s future. Construction on the gas pipeline has been suspended since late 2019 following initial U.S. sanctions, but the anticipated expansion of those sanctions by Congress could leave the project unable to start operations. During this quarter, Gazprom may attempt to finish the construction of the pipeline, but limited access to niche pipe-laying vessels and support for this activity means that the physical pipeline is unlikely to be finished within the quarter. <a href="/article/nord-stream-2-comes-under-fire-germany">Germany&#39;s support for the project may wane</a> depending on the outcome of the ruling party leadership elections between candidates with opposing views on German relations with Russia. The enactment of <a href="/article/existential-danger-nord-stream-2-pipeline-us-sanctions-germany-russia-europe">expanded U.S. sanctions</a> against Nord Stream 2 could also shake the German position due to its targeting of authorities certifying the pipeline for operation.</p>

<h3>Postelection Crisis in Belarus Will Bring Lukashenko Closer to Russia Again</h3><p>The government of Belarus under the leadership of President Aleksandr Lukashenko will continue to disrupt the opposition while increasing its dependence on Moscow during the fourth quarter. <a href="/article/charting-path-protests-power-belarus">The opposition movement</a> in Belarus has demonstrated significant staying power, and will likely be able to continue its activities into the next quarter despite an expected waning of its ability to mobilize mass protests. Lukashenko will meanwhile seek to restore his legitimacy through the visible support of Russia and limited domestic political reform. Such reform, including a potential constitutional referendum, may not materialize within the quarter, and is not expected to bring a true liberalization of Belarusian politics.</p>

<p>Relations with the European Union and individual member states will continue to deteriorate, likely resulting in a rollback of economic relations that Belarus had sought to expand over the past decade. Lukashenko&#39;s domestic challenges instead will drive him closer to Russia, and the initial implementation of <a href="/article/anxious-russia-pulls-belarus-closer-eu-putin-lukashenko-minsk">closer economic and political integration</a> between the two countries could occur within the next quarter.</p><h3>The Kremlin Will Face Growing Challenges to Its Popularity</h3><p>The real effects of the <a href="/article/russia-economic-challenges-despite-moscows-optimistic-forecast">country&#39;s economic crisis</a> will become more apparent in the quarter and will fuel discontent with Moscow&#39;s political elite. As concerns over the spread of COVID-19 wane, the potential for this discontent to manifest itself in protests will rise during the fourth quarter. Economic duress among Russia&#39;s middle class will fuel growing opposition activity as the country enters the final year before State Duma elections scheduled for September 2021. Given limited setbacks in regional elections during 2019 and 2020, the Kremlin is expected to expand its suppression of opposition activity in order to protect the position of the United Russia party in the Duma. The combination of oppressive activities and economic hardship, however, could backfire and further fan opposition activism, particularly in the eastern regions of Russia where the Kremlin&#39;s hold is already weakest.<br />&nbsp;</p>

<p><strong>October:</strong> Russia plans to initiate a mass COVID-19 vaccination campaign<br /><strong>Oct. 4:</strong> Parliamentary elections in Kyrgyzstan<br /><strong>Oct. 11: </strong>Presidential elections in Tajikistan<br /><strong>Oct. 31:</strong> Parliamentary elections in Georgia<br /><strong>Nov. 1: </strong>Presidential elections in Moldova</p>

South Asia

<h3>Expansion of COVID-19 Will Loom Large Over Indian Economy and Political System</h3><p>The impact of COVID-19 on India&#39;s economy, political environment and society will be significant in the fourth quarter. India will likely pass the United States with the most COVID-19 cases globally and will struggle to contain the spread, adding to strains on its health care system. Intermittent and local lockdown orders are likely to continue in parts of India, although Prime Minister Narendra Modi will seek to avoid another nationwide lockdown despite rising case numbers. This will continue to alleviate some of the economic pain, but recovery will be prolonged by the growing direct impact of COVID-19.<br />&nbsp;</p>

<p>New Delhi will also run into limits on its ability to expand fiscal stimulus for the economy, and will rely on the RBI&#39;s monetary stimulus to accelerate the economy. This will lead to rising financial stress in the already-fragile banking sector in the form of higher corporate debt and rising NPLs even as the RBI tries to support the banking system. The Indian National Congress will hope to take advantage of a poor economic performance and health crisis to gain seats in Bihar state elections, but the opposition party&rsquo;s internal leadership crisis and defections will limit its ability to do so.</p><h3>Winter Will Limit Military Indo-China Border Incidents, in a Temporary Reprieve</h3><p>The risk for low-level military escalations remains high as Chinese and Indian forces continue to try to outmaneuver each other in the Tibetan heights of the Ladakh region, but during the fourth quarter the harsh Himalayan winter will force a pause in developments on the ground. Extremely low temperatures and limited mobility in the border region will make the deployment of large numbers of military assets impractical during winter. Early on in the quarter continued flare-ups might still occur, triggering deescalation procedures.&nbsp;</p>

<p>Each side will seek to maintain some presence to guard their claims, but once winter temperatures and snowfall occur, the potential for renewed escalations will be minor, as patrolling activity will be suspended. <a href="/article/military-drive-spells-out-chinas-intent-along-indian-border">Longer term Chinese ambitions</a> to ramp up the military backing of its territorial claims will still lead India to adjust its overall military posture toward China. Demonstrations of key capabilities and preparations for expected renewed tensions in spring will be visible, while India&#39;s military and political leadership will aim to formulate a higher level security strategy to tackle China.</p><h3>Slow Progress in Afghan Peace Negotiations as the U.S. Presence Diminishes</h3><p>Direct Negotiations between the Afghan government and the Taliban, which started only during the previous quarter, will progress through an exploratory phase during the fourth quarter. <a href="/article/us-taliban-deal-likely-peace-afghanistan-not-war-election">Major achievements</a>, such as a nationwide cease-fire or agreements on elections, will remain outside of the scope of achievable objectives for now.<br />&nbsp;</p>

<p>Negotiations will be taking place, however, against the backdrop of a continued withdrawal of U.S. forces based on a separate U.S.-Taliban deal that will leave Kabul more exposed to the diplomatic weight that the Taliban&#39;s military strength offers. Negotiations could still collapse this quarter, though both parties are heavily incentivized by the United States to continue the process, as the progression of military withdrawals and direct support to Kabul are dependent on the willingness of the two sides to engage in meaningful negotiations.</p>

<p><strong>Mid-October: </strong>Human trials for Novavax COVID-19 vaccine begin in India<br /><strong>October-November:</strong> Elections in India&#39;s Bihar state<br /><strong>End of October:</strong> United States plans to reduce troops in Afghanistan to 4,500 from 8,600<br /><strong>Oct. 21-23:</strong> FATF reviews Pakistani compliance on AML/CFT measures during its plenary session</p>

Sub-Saharan Africa

<h3>COVID-19 Fuels Anger at South Africa&rsquo;s African National Congress</h3><p>The political impact of COVID-19 on the African National Congress will be on full display this quarter as the ANC faces corruption accusations and deals with a <a href="/article/south-africas-budget-outlook-paints-picture-lost-decade">tumultuous economy</a> even as the intensity of the COVID-19 outbreak wanes. Corruption and economic mismanagement accusations will be in focus as labor unions protest graft and factions within the ANC seek to discredit each other through anti-corruption initiatives, including one led by President Cyril Ramapohsa. Although the ANC will be weakened, neither the Democratic Alliance nor the Economic Freedom Fighters are strong enough to take advantage of this at this point. Economically, South Africa will see a slight recovery in output &mdash; but a full recovery remains months if not years off.&nbsp;</p><h3>Abiy Will Struggle to Safeguard Ethiopia&#39;s Federalism</h3><p>Ethiopian Prime Minister Abiy Ahmed will be hard-pressed to keep the federal states of Ethiopia in line during the fourth quarter. Recent <a href="/article/ethiopia-s-tigray-region-defies-federal-election-plans">regional elections in the Tigray region</a>, unsanctioned and declared void by the federal government, represented a direct conflict with federal power in the regions and demonstrate the limits of Addis Ababa&#39;s ability to enforce its rule throughout the entire country.</p>

<p>Other regions, such as Oromo and the Southern Nations, will likely see increased calls for autonomy despite federal efforts and hard-line tactics. Abiy is on a tight schedule to restore <a href="/article/make-or-break-moment-nears-ethiopias-political-transformation-abiy-ahmed-election-democracy-africa">perceptions of federal control and to secure his own position</a> as a valid representative of the Ethiopian people as the country moves toward yet unscheduled elections expected to occur in 2021 following their indefinite postponement due to COVID-19.</p><h3>Political Crises Persist in Mali and Ivory Coast</h3><p>Both Mali and the Ivory Coast will have difficult and potentially violent fourth quarters that could force the Economic Community of West African States to intervene and mediate potential crises. In Mali, splits within the political system will make the 18-month transition process contentious, with politically-motivated violence and protests despite having a nominally civilian leader. Counterterrorism efforts are also likely to be impacted, making jihadist activity in Mali, Nigeria and Burkina Faso a consistent threat in Q4. In the Ivory Coast, <a href="/article/ivory-coast-presidential-candidates-death-risks-ending-violence">October elections</a> and the candidacy of President Alassane Outarra will result in protests. No matter who wins, election-related violence and demonstrations in the country&nbsp;&mdash; particularly in the losing candidates&#39; heartland &mdash; will occur. A full-scale military uprising akin to the 2010 Ivorian Civil War, however, is unlikely.&nbsp;</p><h3>Nigeria&#39;s Twinned Crises Weigh Heavily on Buhari and APC Unity</h3><p>The sluggish recovery in oil prices and continued violence in the north from Islamic State West African Province and other militant groups will weigh heavily on President Muhammadu Buhari and the All Progressives Congress. ISWAP&#39;s shift to destructive attacks against villages in northwestern Nigeria and the emergence of more widespread attacks and violence there will continue this quarter, further damaging Buhari&#39;s attempts to position himself as a leader who can solve Nigeria&#39;s security woes.</p>

<p>Nevertheless, the biggest threat to Buhari and the APC remains the sluggish economy. Nigeria&#39;s dollar shortage will continue to affect traders, companies and importers and could force another devaluation of the naira. The twinned crises will continue to manifest in turmoil for the ruling APC and factionalism will increase this quarter, raising the risk of the party splitting or mass defections.</p><h3>Centralization of Power Risks Unrest in Tanzania and Uganda</h3><p>Two of East Africa&#39;s most stable countries, Tanzania and Uganda, are in the middle of election season and both will see significant crackdowns on opposition groups that could result in limited demonstrations and violence. In Tanzania, President John Magufuli&#39;s abrasive approach to consolidating power will result in a heavy crackdown on journalists, opposition parties and civil society groups. Magufuli and the ruling Chama Cha Mapinduzi have little chance of losing national elections. But election turmoil in Zanzibar is possible, and Magufuli&#39;s crackdown will continue to damage Tanzania&#39;s luster as a regional investment destination. Pop star-turned politician Bobi Wine and his supporters represent the most <a href="/article/ugandas-30-year-run-political-stability-nearing-end">significant challenge to Ugandan President Yoweri Museveni</a>. Museveni and the Ugandan security apparatus will seek to disrupt opposition rallies and demonstrations, using increased arrests of opposition leaders, even more than usual in the lead-up to elections planned for January or February 2021. This could lead to violent clashes, including in Kampala, the capital and economic heart of Uganda.&nbsp;<br />&nbsp;</p>

<p><strong>Oct. 10:</strong> Ondo state, Nigeria, elections<br /><strong>Oct. 18:</strong> Guinean elections<br /><strong>Oct. 28:</strong> Tanzanian elections<br /><strong>Oct. 31: </strong>Ivory Coast elections<br /><strong>Nov. 22:</strong> Burkina Faso elections<br /><strong>Dec. 7:</strong> Ghana elections<br /><strong>Dec. 28:</strong> Liberian constitutional referendum<br /><strong>Dec. 28:</strong> Nigerien elections</p>

2020 FOURTH-QUARTER FORECAST

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