Global Trends

The geopolitical environment in 2021 will be shaped by two global developments: the trajectory of the COVID-19 pandemic and the efforts by U.S. President-elect Joe Biden's administration to restore collaborative relationships across the globe.

Annual

<p>The COVID-19 shock to the <a href="/article/worst-global-recession-80-years-here-where-s-bottom">world economy</a> will last deep into 2021. The depth of the economic decline in 2020 did not match that of the Great Depression, but the pace and blow to a much larger global economy will raise long-term recovery issues. Even with vaccines, the global economy faces a long, difficult recovery from the most precipitous output drop in history, with risks mainly to the downside, including possible viral recurrences.<br />&nbsp;<br />The key task of policymakers in 2021 will be to sustain economic activity pending the end of the pandemic and returning to a feasible and sustainable growth path, especially given the continuing need for dramatically increased public income support and <a href="/article/reassessing-global-economic-fallout-covid-19-coronavirus-pandemic-economy">rapidly increasing debt</a>. Despite unprecedented amounts of fiscal stimulus and massive liquidity support from central banks, aggregate global output may just barely return to pre-pandemic levels by the end of 2021, due only to stronger and earlier recoveries in China and other parts of Asia compared with countries and regions elsewhere.<br />&nbsp;<br />Much will depend on the availability, distribution and effectiveness of COVID-19 vaccines, or the development of better treatments to mitigate the health fallout from the virus, as well as the willingness of people to be vaccinated and endure restrictions on activity. Even with effective vaccines, limits on distribution and availability in the first half of the year will leave government restrictions largely in place, especially on an ad hoc basis in the event of outbreaks. Consumers and businesses will, in turn, remain cautious for an indeterminate time. A return to something approximating normal will differ by region and country-to-country.<br />&nbsp;</p>

<p>Global GDP growth in 2021 is projected at 4-5%, with China contributing roughly one-third of that growth. Recovery elsewhere is expected to be uneven, with much of the world not reaching pre-pandemic GDP levels until 2022, including <a href="/article/renewed-covid-19-concerns-put-us-economic-growth-doubt">probably the United States</a> and Europe. The impact of permanent job losses and insolvencies will contribute to long-lasting costs and a need for further extraordinary fiscal expenditures. Inflation, however, should remain subdued given the slow recovery in demand and slack in both labor and capital markets. Global <a href="/article/what-make-us-feds-new-approach-inflation">interest rates</a> will remain suppressed, near or at zero, with negative returns on many sovereign bonds. Even in the face of some reflation, financial repression with low interest rates will be needed to rein in debt service costs from increases in global debt of 10-20% of GDP in 2020.<br />&nbsp;<br />For emerging markets and developing economies, the pandemic has exacerbated existing vulnerabilities, especially with regard to sovereign and corporate debt. Excess global liquidity, combined with risk-taking, should support external financing with creditworthiness concerns arising only on a case-by-case basis. The global health crisis, however, has wiped out a decade or more of aggregate gains in many of the <a href="/article/covid-19-will-cause-global-poverty-spike">world&#39;s poorest countries</a>, forcing a large number of people to return to poverty. Prospects for a reversal of this situation will take years to realize in the context of an overall slow-growth global environment that existed prior to the pandemic. As a result, economies in impoverished countries will, at best, revert to slow expansions once quick recoveries are exhausted.<br />&nbsp;</p>

An Uneven COVID-19 Recovery

<p>Much higher debt will be a lingering effect of the pandemic for all countries, but the impact will be strongest for emerging markets and developing economies, especially poor countries with limited fiscal resources that are heavily dependent on external capital flows. The rollout of vaccines for poorer countries will likely take until at least the end of 2021, making them subject to ongoing economic disruptions that require continued government support. Lower commodity prices will impact the availability of resources and options for financing will be limited. Low interest rates in developed countries and a return of risk-seeking investors means larger emerging markets such as Brazil and Turkey, as well as poorer, developing countries with sound economic and credit fundamentals such as Kenya or the Ivory Coast, should be able to access global capital markets depending on global financial conditions. Others, including the 20 low-income countries that the World Bank and International Monetary Fund (IMF) consider either in or at risk of debt distress, will have difficulty finding funds at reasonable costs.<br />&nbsp;<br />The Group of 20 (G-20)&#39;s <a href="/situation-report/global-g-20-summit-concludes-underwhelming-results">Debt Service Suspension Initiative</a> (DSSI) &mdash; which helped defer about $5 billion of the estimated $12 billion owed by the 73 poorest countries in 2020 &mdash; has been extended through the first half of 2021. The G-20 has also agreed to a &quot;common framework&quot; to negotiate debt restructuring for countries that need it to attain <a href="/situation-report/global-g-20-extends-debt-relief-plan-six-months">long-term debt sustainability</a>. Nonetheless, working out details will be cumbersome and a prolonged process. China&#39;s full participation and the transparency of its claims remain problematic, as is participation by <a href="/situation-report/global-private-sector-creditors-voice-concerns-over-debt-relief-plan">private creditors</a> and eurobond holders. Zambia might have provided <a href="/article/zambia-s-imminent-debt-default">an early test case</a>, but the negotiation of an IMF program and debt restructuring will not happen until after the African country holds elections in October. Even then, that will be a messy process and the &quot;common framework&quot; probably will not be tested in 2021, leaving Zambia and other countries to deal with financing gaps and default on an ad hoc basis. Progress on the DSSI will also depend partly on the Biden administration and the rest of the G-20&#39;s political appetite to take on China on yet another issue.<br />&nbsp;</p>

Emerging Market Debt

<p>The Biden administration will focus heavily on rebuilding the United States&#39; relationships with key European, North American and Asia-Pacific allies as a part of its broader return to a more multilateral approach to foreign policy. In an attempt to strengthen the rules-based, Western-led global order, the new White House will try to ally with like-minded countries to confront challenges such as China&#39;s rise, climate change and the growing <a href="/article/us-broadens-its-tech-battle-china">clout of the tech companies</a>. To pave the way for such coordination, the United States will likely try to alleviate its differences with the European Union on issues like trade and defense spending, as well as ease the recent uptick in tensions between Japan and South Korea. The Biden administration will also work to re-enter a number of agreements and institutions that its predecessor abandoned, particularly those related to climate change and human rights.<br />&nbsp;<br />But while U.S. relations with other Western countries will improve in 2021, significant differences could still undermine full cooperation between them in the face of China. The United States and Europe&#39;s divergent technology policies, in particular, could blunt the West&#39;s ability to counter China&#39;s tech sector by limiting EU-U.S. collaboration on issues such as <a href="/article/trump-s-war-against-taxing-tech-goes-global">taxing tech companies</a> and setting global industry standards. Reforming the <a href="/article/trump-and-wtos-uncertain-future">World Trade Organization</a> and appointing members to its Appellate Body will likely also be difficult, given the significant role of China and other non-Western countries in the organization.<br />&nbsp;</p>

Biden's Constrained Return to Multilateralism

<p>The Biden administration will maintain an aggressive stance against China. It will also attempt to build a more cohesive international alliance against Beijing. But because of the many differences between the United States and its traditional allies, such international cooperation will not achieve the Biden administration&#39;s desired results. This will, in turn, force the White House to rely on unilateral measures against China, periodically causing significant friction with U.S. allies as business and political interests get caught in the middle. The frequency of such disunity, however, will decrease in 2021.<br />&nbsp;<br />There may only be a small change in U.S. policy regarding China&#39;s tech sector, which will remain a key focus of the Biden administration. Global tech companies have already begun compartmentalizing their supply chains as a result of significant export controls and other U.S. restrictions on Chinese companies like Huawei that have been imposed over the past four years. Compared with Trump, however, Biden will probably be more focused on targeting China&#39;s tech sector as a whole instead of specific Chinese companies in an effort to establish a more rules-based environment.<br />&nbsp;<br />A widening of the China-U.S. tech war beyond AI, semiconductors and 5G to more restrictions on cloud computing, digital services and fintech is likely. China, meanwhile, will increasingly <a href="/article/us-pressure-tiktok-prompts-chinese-show-legal-force">respond in kind</a> by imposing similar restrictions on tech companies in the United States and other Western countries. But such retaliatory actions will be tempered by Beijing&#39;s desire to also protect its <a href="/article/china-s-wolf-warrior-diplomacy-risks-backfiring-beijing">global reputation</a> ahead of the 100th anniversary of the founding of the Chinese Communist Party in 2021 and the Beijing Winter Olympics in 2022, as well as drive a wedge in U.S. attempts to build an international coalition.<br />&nbsp;<br />Despite its focus on improving overall U.S.-China relations, the <a href="/article/fate-trump-s-china-tariffs-under-biden">Biden administration</a> will find it difficult to remove its predecessor&#39;s tariffs on China. In exchange for reducing tariffs, the United States will demand significant structural reforms &mdash; something China already rejected in negotiations with the Trump administration. Any narrow trade deal involving Chinese purchases of U.S. goods would also need to at least equal the levels of imports that Beijing committed to in the &quot;phase one&quot; trade deal it signed with the Trump administration in 2019. In addition, Biden will be under pressure to punish China for non-compliance with the first deal as Chinese imports continue to lag far behind promised levels. Another narrow U.S.-China trade deal is possible in 2021, but a significant one that removes most tariffs against China is unlikely.</p>

The U.S. Remains Laser-Focused on Chinese Tech

<p>Biden will shift the U.S. strategy in the Middle East by <a href="/article/limits-biden-s-proposed-return-diplomacy-iran">entering negotiations</a> with Iran. Significant constraints will limit the United States&#39; ability to simply revive its participation in the Iran nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA). But a compliance-for-compliance agreement that sees suspended U.S. financial sanctions on Iran&#39;s oil sector in exchange for a reduction in Iran&#39;s nuclear activities is likely. Iran&#39;s expanded regional activity in recent years, including missile and drone attacks on Saudi Arabia, will likely also force Washington to broaden negotiations beyond Iran&#39;s nuclear program when it comes to a successor or replacement deal to the JCPOA, with those talks likely lasting well beyond 2021.&nbsp;</p>

<p>The opening up of such negotiations with Iran will <a href="/article/how-israel-will-try-shape-biden-s-middle-east-policies">unnerve Israel</a>, the United Arab Emirates and Saudi Arabia, but will not result in a significant rupture in the United States&#39; relationship with these three countries. Uncertainty surrounding Washington&#39;s long-term intentions with Iran, however, will propel <a href="/article/eying-normalization-saudi-arabia-changes-its-tone-israel">continued normalization</a> efforts between Israel, the United Arab Emirates and Saudi Arabia as they look to build a foundation for cooperation independent from the United States on issues where they share common interests.<br />&nbsp;</p>

A Shifted U.S. Middle East Policy With Iran Negotiations

<p>Under Biden, the United States will re-enter the Paris climate accord quickly as Washington intensifies its focus on climate change and environmental issues. But the lack of a large Democratic majority in the Senate will hinder Biden&#39;s ability to pursue more sweeping environmental policies. Reluctance from moderate Democratic senators means climate change and environmental legislation proposed by more progressive members in the Democratic Party will either be watered down or implemented via executive action. Nevertheless, rule and policy changes related to U.S. emissions standards and covering the oil and gas industry are likely. With powerful Democratic-led states like New York and California back in sync with the federal government on such policies, increased coordination on climate issues across various levels of the U.S. government is also likely.<br />&nbsp;<br />Globally, both corporate and state climate initiatives will gain momentum in 2021 as public concerns about climate change and activism in response to it continue to mount. National governments, energy companies and large energy consumers will modify their strategies in concrete ways to achieve newly established emissions targets that are attainable in the medium-term. Increased liability and risks, along with pressure from shareholders, will accelerate these initiatives throughout 2021. Many governments will also make green projects a pillar of their post-pandemic economic stimulus programs, and investors will continue to focus heavily on decarbonizing investments as scrutiny on emissions-intensive industries continues to grow.</p>

As the Global Climate Fight Intensifies, Biden Faces Constraints at Home

<p>COVID-19 and the <a href="/article/oils-importance-fades-so-will-opec">energy transition</a> will continue to foment internal incoherence among the world&#39;s oil producers, limiting the ability of OPEC and its allies (also known as OPEC+) to manage <a href="/article/opec-production-cuts-meet-another-covid-19-reality-check">global oil production</a> and reduce inventories. As the end of the pandemic comes into view amid vaccine rollouts, OPEC+ will face significant internal disagreements about the pace and scope of relaxing production cuts. Countries will also be more willing to reduce their levels of compliance with the deal. OPEC+ production cuts may formally remain in place in 2021, but Iraq, Nigeria, Kazakhstan and others will increasingly challenge Saudi Arabia&#39;s views. Russia has largely backed a higher level of restraint, but the Kremlin&#39;s position will diverge more significantly from Saudi Arabia&#39;s in the second half of the year, when the end of the pandemic is closer on the horizon.<br />&nbsp;</p>

As End of the Pandemic Nears, OPEC+ Discontent Grows

Asia-Pacific 

<h3>U.S.-China Tensions Will Remain Quiet, but Endure</h3><p>Although it will ease back on the Trump administration&#39;s emphasis on sudden moves to pressure China on all fronts and on <a href="/article/fate-trump-s-china-tariffs-under-biden">advancing the trade war</a>, the incoming Biden administration will maintain the broad U.S. pressure campaign regarding China. Given the bipartisan push to address Chinese conduct, this will include continued targeted sanctions linked to <a href="/article/us-responds-chinas-uyghur-crackdown-more-sanctions">ethnic Uighurs</a>, the <a href="/article/us-expands-its-south-china-sea-fight-chinese-firms-and-officials">South China Sea</a> and <a href="/article/tech-bans-and-hong-kong-sanctions-trump-hits-china-one-two-punch">Hong Kong</a> in addition to efforts to counter Chinese tech ambitions and to shore up U.S. defense presence in the Pacific. As before, China will respond selectively to U.S. moves, with proportional responses on issues such as diplomatic ejections, human rights pressure and tariffs, but continued caution in matters such as export controls. This will bring a more predictable, less overtly hard-line U.S. stance toward China, smoothing dramatic spikes in tensions. But Washington&#39;s shift toward long-term, strategic objectives regarding China and a multilateral approach will see U.S.-China tensions steadily mount long term as they become an unchallenged norm of U.S. foreign policy.<br />&nbsp;</p>

<h3>Opportunities for Middle Powers in the Pacific</h3><p>Given the Biden administration&#39;s shift to outreach to Asia-Pacific partners and the easing of U.S. trade pressure on Asian countries other than China and (to an extent) Vietnam, middle powers will have more room for maneuver. Japan will continue to be a major focus of U.S. strategy to counterbalance China in 2021 with increasing Japanese regional outreach in line with U.S. priorities. <a href="/article/new-us-president-leaves-south-korea-cautiously-optimistic">South Korea</a> will see an easing of U.S. pressure to boost its share of <a href="/article/trumps-defense-price-hike-rocks-us-south-korean-alliance-military">defense cost contributions</a>. Tensions between U.S. ally <a href="/article/australian-bills-passage-would-turn-heat-china">Australia and China</a> are unlikely to ease, but the new U.S. administration may allow Canberra room to pause rather than escalate friction with China. Regarding Taiwan, the Biden administration will ease back on high-profile, provocative U.S. moves (such as official visits), but will maintain a strong U.S. emphasis on the <a href="/article/chinas-evolving-taiwan-policy-disrupt-isolate-and-constrain">Taiwan relationship</a> through rolling weapons sales and sending vessels through the Taiwan Strait. U.S. policy in the South China Sea will see a great deal of continuity in terms of a sustained U.S. presence there to counterbalance Chinese expansion, but the Biden White House will engage in a more multilateral effort in the South China Sea with less pressure on claimants to pick sides. This will see the U.S. court Vietnam and <a href="/article/indonesia-guards-its-front-door">Indonesia</a> and engage in outreach <a href="/article/philippines-takes-tougher-approach-its-south-china-sea-claims">to the Philippines</a>, which is already hardening its stance towards China. This, in turn, will spur China toward outreach to Association of Southeast Asian Nations members through economic sweeteners and to finalize a South China Sea Code of Conduct.</p><h3>China&#39;s Domestic Recovery</h3><p>China&#39;s early COVID-19 pandemic and successful containment will allow it to continue its early lead in returning to <a href="/article/china-s-economic-recovery-widens-risks-remain">growth in 2020</a>&nbsp;with continued economic expansion in 2021. Its economy will still face challenges given the slowdown in key overseas markets, uneven recovery within China and the risk of renewed outbreaks. Beijing will tout its economic and virus control success as compared to the West to shore up Communist Party of China legitimacy ahead of the 2021 centennial of the party&#39;s foundation and the release of a new five-year economic plan, which will require the government to account for the long-term structural slowdown in growth and the risks of U.S.-China tensions.&nbsp;<br />&nbsp;</p>

<p>With an eye toward these headwinds, the government will emphasize domestic self-reliance and efforts to more closely connect more developed coastal provinces to the less developed interior, easing back where possible on reliance on imported goods in favor of domestically extracted resources. The pandemic-fueled push for domestic self-reliance and continued U.S. pressure on the tech sector will accelerate government efforts to boost domestic industry under its Made in China 2025 initiative. Beijing will also work to rein in large tech companies, including Alibaba and Tencent, to erode the economic independence that they have built up over the years of lax regulation standards and to ensure that their corporate business models and priorities more closely align with Beijing&#39;s.</p><h3>In Hong Kong, China Tightens the Reins</h3><p>Hong Kong local authorities and the central government will focus on containing dissent and further fragmenting the opposition to ensure control ahead of the delayed September 2021 <a href="/article/beijing-moves-temper-tensions-hong-kong-extended-legislative-term">Legislative Council election</a> and the March 2022 <a href="/article/predictable-predicament-hong-kong">chief executive selection process</a>. Beijing will have a particularly low tolerance for unrest in Hong Kong given the importance of the July 2021 100th anniversary of the founding of the Communist Party of China, the March release of its new five-year <a href="/article/chinas-economic-recovery-continues">economic plan</a> and the February 2022 Beijing Winter Olympics. The pro-establishment&#39;s virtually unchallenged <a href="/article/without-legislative-seats-what-s-next-hong-kong-s-pro-democracy-camp">policymaking powers</a> will bring reforms to weaken the opposition in the long term that will risk provoking a backlash on the streets. Although the radical fringes of the pro-democracy and pro-independence camp may engage in confrontational or violent tactics, mass turnout will be suppressed by the lingering COVID-19 pandemic and fear of the new <a href="/article/chinas-security-law-ushers-new-and-uncertain-era-hong-kong">National Security Law</a>. The latter half of the year, however, may see authorities ease back on their more heavy-handed tactics in the interest of legitimizing elections and dissipating negative international attention on China ahead of the 2022 Olympics. In terms of the U.S. approach to Hong Kong, the incoming Biden administration will follow the relatively cautious approach followed by the <a href="/article/white-house-s-hong-kong-report-maintains-its-measured-approach">Trump administration</a>, pushing forward with sanctions narrowly targeted at individuals and entities directly involved in eroding Hong Kong&#39;s autonomy but refraining from targeting financial institutions with broad international exposure or targeting Hong Kong&#39;s ability to <a href="/article/hong-kongs-dollar-peg-likely-remains-safe-us-sanctions-now">access U.S. dollars</a>.&nbsp;</p><h3>A Weakened North Korea Faces a New White House</h3><p>Facing the uncertainty of a new U.S. administration and massive economic hardship, North Korea will spend much of the year focused domestically and on trying to compel or convince the international community to ease U.S.-led sanctions. The Biden transition will bring the likelihood of a long delay in outreach given a focus on U.S. domestic issues and <a href="/article/new-iranian-law-could-bring-nuclear-issue-crisis-point-under-biden">U.S. Iran policy</a>, with a reluctance to engage in high-level North Korea dialogue, dramatically lessening the chances of a breakthrough. Pyongyang&#39;s early 2021 Party Congress will bring an opportunity for the regime to announce a <a href="/article/north-korea-likely-stay-course-ahead-us-election">new strategic line</a> towards the United States, but the gathering will focus foremost on restoring economic growth amid COVID-19, crop shortages and sanctions.&nbsp;The likely U.S. frozen outreach will present North Korea&#39;s regime with a dilemma, with renewed missile tests risking an early souring of U.S. relations even as they would help forward its <a href="/article/geopolitics-and-pitfalls-provocation">weapons program</a>, service key military factions and remind the U.S. of the costs of neglecting North Korea outreach. North Korea will proceed cautiously with tests, however, given that its external focus will be on outreach to China and South Korea to weaken international resolve on maximum pressure. China will become an increasingly important lifeline for North Korea as Beijing seeks to shore up regime stability.<br />&nbsp;</p>

Key Trends for 2021

<p><strong>Early 2021:</strong>&nbsp;Thailand holds referendum on constitutional change&nbsp;<br /><strong>January:</strong>&nbsp;Workers&#39; Party Congress in North Korea&nbsp;<br /><strong>January:</strong>&nbsp;13th Congress of the Communist Party in Vietnam&nbsp;<br /><strong>February:</strong> Hong Kong&#39;s government will propose its annual budget<br /><strong>March:</strong> China will hold its National People&#39;s Congress and release its 14th five-year economic plan.<br /><strong>May:</strong> The World Health Organization will release the final results of an inquiry into the origins of COVID-19<br /><strong>July 1:</strong> The Communist Party of China will mark its 100th anniversary.<br /><strong>July 23 - August 8:</strong> The 2020 Summer Olympics are scheduled to be held in Tokyo, Japan.<br /><strong>September:</strong> Japan&#39;s ruling Liberal Democratic Party likely to hold internal leadership elections.<br /><strong>September&nbsp;6:</strong> Hong Kong may hold delayed Legislative Council elections<br /><br />&nbsp;</p>

Key Calendar Dates

Europe

<h3>A Two-Speed Economic Rebound Takes Shape</h3><p>Economic activity will improve across Europe in 2021, but differences in performance between the north and the south will play out against long-standing economic fault lines. Northern European countries will probably recover most of the COVID-19-related losses of 2020 in terms of GDP, employment, production, consumption and investment, while in the south most of these indicators will remain below pre-pandemic levels. The vaccination process will be slow and uneven, forcing governments across the Continent to keep some social distancing measures in place for several months. This will continue to negatively impact sectors such as tourism and hospitality, at least during the early part of the year, which will be particularly damaging to tourism-dependent <a href="/article/europes-tourism-industry-confronts-unwelcome-visitor-covid-19-coronavirus-italy-spain-france-greece">economies in the south</a>. An improved economic climate will allow northern governments to progressively lift their stimulus measures in order to reduce their fiscal deficits, but governments in the south will keep, or even increase, their expansionary policies at the price of high fiscal deficits and worsening debt. As a result, financial risk (including that of sovereign debt and banking crises) will <a href="/article/southern-europe-s-covid-19-crisis-just-beginning-eu-italy-france-spain-greece-portugal-coronavirus-economy-politics">persist in the south</a>, while it will decrease in the north. Socioeconomic conditions in the south will also leave the door open to anti-establishment sentiments and actions.<br />&nbsp;</p>

<p>The north-south divergence in economic performance will make it hard for the members of the eurozone to reach consensus on measures to increase economic and financial risk-sharing in the currency area because the sense of economic urgency that made large <a href="/article/eu-reaches-landmark-recovery-fund-deal-divisions-remain">EU stimulus packages</a> possible in 2020 will be gone. Structural reforms such as the completion of the banking union or the integration of financial markets will probably be postponed, which will leave the eurozone vulnerable to future crises. In the meantime, greater optimism about the global economy will make the European Union more willing to engage in trade talks. As a result, the European Commission is likely to resume trade negotiations around the world, including with countries like Australia and New Zealand. As the economic environment slowly improves, the European Commission is also likely to continue introducing Green Deal-related legislation to pressure the public and the private sectors to reduce their carbon emissions.</p><h3>EU-U.S. Relations Improve, but Disagreements Remain</h3><p>The European Union and the United States will privilege <a href="/article/what-biden-presidency-means-europe-us-relations">cooperation over confrontation</a> in their bilateral relations, but disagreements on issues such as trade, defense and relations with China will remain between Brussels and the White House. The United States and the European Union will probably refrain from imposing new tariff hikes on each other&#39;s exports, but existing ones may be kept. In the meantime, a comprehensive EU-U.S. trade deal will remain elusive because conflicting interests in Brussels and the White House on issues such as agricultural exports and personal data sharing will continue to create obstacles. The United States will continue to pressure its NATO allies in Europe to increase their spending on defense, but without questioning the alliance&#39;s mutual protection clause. Regarding China, Brussels and the White House will be aligned on issues such as keeping a tight oversight of Chinese investment in strategic areas of their economies, demanding a level playing field for foreign investors in the country and penalizing Beijing over human rights issues. But export-dependent countries like Germany will pressure Brussels against escalating any trade disputes with Beijing. One of the areas where the United States and the European Union will increase cooperation is the <a href="/article/what-eu-green-deal-means-governments-and-companies">fight against climate change</a>, especially as the United States rejoins the Paris climate agreement. Brussels and the White House will also defend the role of multilateral organizations such as the World Trade Organization and the World Health Organization and will seek to strengthen them and cooperate in their reform.<br />&nbsp;</p>

<h3>The End of the Merkel Era in Germany</h3><p>A general election in Germany in September will mark the end of <a href="/article/germanys-next-election-season-will-begin-period-political-turbulence">Angela Merkel&#39;s chancellorship</a> after 16 years in power and open the door to political change in Europe&#39;s largest economy, especially if the current centrist government is replaced by a more right- or left-leaning administration that seeks to change course on issues such as fiscal spending and EU integration. German voters will have to choose between center-right parties that defend domestic fiscal discipline and are reluctant to share financial risk in the eurozone, and center-left parties that defend higher public spending and are more supportive of EU federalization. Far-right and far-left parties will probably perform well, but the most likely outcome is a centrist government that does not introduce drastic changes in domestic or foreign policy. The election will probably result in a fragmented Bundestag and long negotiations to form a government, which will create uncertainty about the future of Germany&#39;s policies and slow down the decision-making process in the European Union because structural reforms at the Continental level will probably be postponed until there is a new government in Berlin.<br />&nbsp;<br />Both before and after the election Germany will be open to domestic stimulus measures to mitigate the economic impact of the COVID-19 crisis, but only as a temporary measure because the government will seek to restore the country&#39;s fiscal balance in the medium term. At the EU level, Germany will see France as a key ally to co-lead the European Union, but Berlin will also seek to tone down some of Paris&#39; proposals during an electoral year, especially those concerning deeper economic and financial integration in the eurozone and greater military cooperation in the bloc. Germany will be committed to the EU&#39;s Green Deal and will increase pressure on households and companies to reduce their CO2 emissions.</p><h3>The United Kingdom After Brexit</h3><p>The United Kingdom will focus its post-Brexit foreign policy on negotiating free trade agreements around the world, but progress will be uneven. Britain will seek to negotiate trade deals with the United States, its most important export market, as well as with its former colonies in the Commonwealth such as Australia and New Zealand. But progress will be slow, especially in the negotiation with the United States, because of issues such as conflicting agri-food standards. The United Kingdom will also continue renegotiating the trade deals it previously enjoyed as an EU member. Progress on these negotiations will be faster, considering that London and its partners will for the most part be replicating existing deals. The United Kingdom will also seek to reach deals with the European Union over issues excluded from the main trade deal, especially financial services. While Brussels is unlikely to grant the United Kingdom full access to its single market, limited deals covering some parts of the service sector are possible, provided that London promises to keep its regulatory framework aligned with that of Brussels.<br />&nbsp;</p>

<p>Brexit will lead to a renewed push for independence in Scotland. While Scotland will not secede in 2021, questions about the United Kingdom&#39;s long-term territorial integrity will remain. In Scotland, voters will overwhelmingly support the pro-independence Scottish National Party (SNP) in the <a href="/article/renewed-push-scottish-independence-takes-shape">country&#39;s legislative election</a> in May. The SNP will campaign on the promise of a new independence referendum, which London will reject. Factions within the SNP will push for the party to abandon its position against doing anything illegal, but they are unlikely to prevail because the party&#39;s leadership will be reluctant to take the risk of unilateral secession. While Scotland will not secede from the United Kingdom in 2021, the issue will not go away anytime soon, keeping British territorial integrity in question.<br />&nbsp;</p>

<p><strong>January&nbsp;1:</strong>&nbsp;Portugal takes over the rotating presidency of the European Council<br /><strong>January&nbsp;24:</strong> Presidential election in Portugal<br /><strong>March 17:</strong>&nbsp;General election in the Netherlands<br /><strong>March 25-26:</strong> European Council summit<br /><strong>June 24-25:&nbsp;</strong>European Council summit<br /><strong>July 1:&nbsp;</strong>Slovenia takes over the rotating presidency of the European Council<br /><strong>September&nbsp;26:&nbsp;</strong>General election in Germany<br /><strong>October&nbsp;14-15:&nbsp;</strong>European Council summit<br /><strong>October:&nbsp;</strong>General election in the Czech Republic<br /><strong>Oct. 30-31:</strong>&nbsp;Italy Hosts the 2021G20 summit<br /><strong>December&nbsp;16-17:&nbsp;</strong>European Council summit<br /><strong>TBA:</strong>&nbsp;United Kingdom Hosts G7 summit<br />&nbsp;</p>

Middle East and North Africa

<h3>Sunni Competition Fuels Regional Instability</h3><p>Competition between Sunni Middle Eastern powers will stoke regional instability in 2021. While Turkey, the United Arab Emirates, Saudi Arabia, Egypt and Qatar will paper over some diplomatic differences to ease the establishment of new relationships with the incoming Biden administration, their long-standing rivalries will remain unresolved. The rivalry between Turkey and the United Arab Emirates, in particular, will surge as each pursues expansionist foreign policies and seeks to block the other from spreading its competing political ideology. The competition will be <a href="/article/whats-driving-turkish-aggression-mediterranean-sea">evident in the Mediterranean</a>, where the United Arab Emirates will increase its support for European efforts to contain expansionist Turkish oil and gas exploration in disputed waters.<br />&nbsp;</p>

<p>It will also be on display in Libya and Somalia, where Abu Dhabi and Ankara support conflicting military forces. And the competition will extend to economic activity, impacting key sectors such as aviation, and cyberspace, where each is jostling to <a href="/article/turkey-sending-troops-libya-economic-foreign-policy-strategy">increase its soft power</a>. Egypt, which opposes Turkish hegemony for economic and ideological reasons, will align more closely with the United Arab Emirates in the coming year in a bid to limit Turkish encroachment in traditional Egyptian spheres of influence, including Mediterranean and Palestinian affairs.</p><h3>Turkey&#39;s Volatile Political Economy Will Make for an Aggressive Foreign Policy</h3><p>Turkey appears poised to embrace a more market-friendly, orthodox monetary policy in the coming year, which will encourage investment and help stabilize the Turkish lira. But continued economic volatility due to <a href="/article/could-personnel-shakeup-turkey-help-stabilize-its-economy">global macroeconomic factors</a> will lead Ankara to posture abroad to bolster its political position at home. Ankara will have to address persistent inflationary pressure that will aggravate the economic uncertainty felt by Turks, <a href="/article/turkeys-economic-weakness-fuels-slow-burning-political-crisis-akp-erdogan">threatening support</a> for the ruling Justice and Development Party (AKP). Turkey&#39;s political opposition will try to leverage economic dissatisfaction into demands for early elections, but the ruling AKP is unlikely to agree to a vote before their scheduled date in 2023.&nbsp;<br />&nbsp;</p>

<p>A need to deflect domestic discontent over the economy will drive Turkey to intensify its aggressive regional posture. Turkey will steadily deepen its oil and gas exploration in the Mediterranean despite growing European and regional complaints, and will advance its efforts to quash <a href="/article/turkey-expands-its-military-operations-northern-iraq">Kurdish militancy in Iraq</a> and Syria in the name of counterterrorism despite Western pushback and the risk of clashes with other forces in the battle spaces, such as the Russians in Syria. EU and U.S. ire is <a href="/article/trump-s-exit-will-increase-turkeys-exposure-sanctions">unlikely to dissuade</a> Turkey, which sees its long-term regional strategy as more important than a short-term reputational hit or financial damage from sanctions.<br />&nbsp;</p>

<h3>Iran Looks to Negotiations for Sanctions Relief</h3><p>Tehran is likely to make incremental progress on its nuclear program in the coming year. New <a href="/article/new-iranian-law-could-bring-nuclear-issue-crisis-point-under-biden">domestic legislation</a> requires that it do so; it will also pursue progress to spur Washington into talks it hopes will yield it sanctions relief. Increasing uranium enrichment beyond 20 percent or suspending the additional protocol could push the European Union toward the U.S. position on limiting Iranian nuclear, missile, and <a href="/article/limits-biden-s-proposed-return-diplomacy-iran">regional activity</a> and limit the odds of a reduction in the U.S. sanctions that are fueling political unrest in Iran. Presidential elections in the middle of the year in Iran will also shape negotiations with the United States. Conservative politicians&#39; performance in the presidential vote will depend in part on the state of the economy and on whether voters believe hard-line strategies like increasing nuclear activity will yield sanctions relief via restarted negotiations.<br />&nbsp;</p>

<h3>Israel&#39;s Right Wing Gains Influence Over Regional Strategy</h3><p>The transition to the <a href="/article/how-israel-will-try-shape-biden-s-middle-east-policies">Biden administration</a> will join domestic factors in shaping Israel&#39;s Iran strategy. Israeli hawks will pressure for greater action against Iran, most likely covertly through cyberattacks, assassinations, bombings, sabotage and airstrikes in regional proxy theaters like Syria, Iraq and Lebanon to undermine the Iranian nuclear program, influence the U.S.-Iranian negotiation process and reduce Iran&#39;s ability to directly threaten Israel. These hawks may gain a greater foothold in the government as the country holds its fourth election in two years, in which nationalists and security-minded parties will be competing for an <a href="/article/israel-s-next-election-will-be-battle-hawkish-policies">increasingly right-wing national vote</a>.&nbsp;<br />&nbsp;</p>

<p>Israel will be unlikely to carry out actions that would undermine its alliance with the United States, which under President Joe Biden will be unlikely to welcome unilateral Israeli actions that could destabilize the region or provoke a conflict. Nationalist politicians will also call for continued expansion of settlements and outposts in the West Bank. While formal annexations may be floated by pro-settler groups, they are unlikely to push ahead given that the new U.S. administration publicly opposes them. Informal settlement expansion will meanwhile continue to undermine the viability of a future Palestinian state in the West Bank.</p><h3>The GCC Faces up to an Uncertain Economic Recovery and a New U.S. Administration</h3><p>COVID-19 recovery goals will reinforce existing plans and policies among Gulf Cooperation Council states to rationalize spending and raise non-oil revenue via taxes and revenue diversification efforts. Saudi Arabia faces the growing risk of social unrest if long-term reforms do not succeed, which will prompt Riyadh to tightly control social media to manage the domestic reaction to higher taxes and <a href="/article/saudi-arabia-s-lean-2021-budget-reflects-its-grim-economic-reality">cuts in social spending</a>. All the GCC states will contend with the implications of growing debt by drawing down financial reserves to finance budget deficits, a strategy Kuwait will heavily leverage. At the same time, less wealthy states such as Oman and Bahrain will probably seek some economic help from their wealthier Gulf Arab neighbors. These financial dynamics will combine with uncertainty about shifts in U.S. regional policy to prompt GCC governments to repair some of their strained bilateral relationships. Saudi Arabia and the United Arab Emirates will remain focused on lobbying for Iran&#39;s isolation through sanctions until a U.S.-Iran deal that assuages their security becomes realistic, but are more likely to pivot toward more multilateral approaches to other regional challenges like Qatar, Yemen and the Palestinians, prioritizing partnerships with the United States to make sure their concerns are heard in Washington. Arab Gulf state <a href="/article/uae-paves-way-arab-gulf-states-normalize-their-israeli-ties">partnerships with Israel</a> will deepen, though the United States will not be as involved in promoting such partnerships.<br />&nbsp;</p>

<h3>Iraq Grapples With Economic Chaos</h3><p>Baghdad&#39;s struggle to manage its oil-dependent economy will grow in 2021. The Iraqi budget will be built around a <a href="/article/iraqs-currency-devaluation-will-prove-double-edged-sword">devalued currency</a>, enabling the government to more easily pay public sector salaries. Not having to cut salaries as formerly planned will significantly reduce the risk of popular unrest. Currency devaluation will, however, likely create new inflationary pressure, higher import prices and a rising cost of living, which could also increase social unrest that Iraq&#39;s weak coalition government probably will fail to manage effectively.<br />&nbsp;</p>

<p><strong>March 23:</strong>&nbsp;Israeli legislative election<br /><strong>June 6:</strong>&nbsp;Iraqi legislative election<br /><strong>June 18:</strong> Iranian presidential election<br /><strong>Summer:&nbsp;</strong>Israeli presidential election<br /><strong>November:</strong>&nbsp;Deadline by which Moroccan general election must be held<br /><strong>December&nbsp;24:</strong> Libyan general election<br />&nbsp;</p>

Eurasia

<h3>A Weak Economic Recovery in Russia</h3><p>The Russian economy will enjoy only a mild recovery in 2021. Weak fiscal and monetary responses, worker displacement, and geopolitical uncertainty will blunt more substantial gains even as global productivity and international energy demand nears pre-pandemic levels. Russian President Vladimir Putin&#39;s relatively moderate stimulus has left consumers and small businesses largely on their own, stretching individual solvency and bank liquidity. With the end of the pandemic on the horizon, a renewed economic intervention potentially tapping into Russia&#39;s considerable treasury reserves or sovereign wealth fund seems highly unlikely. Meanwhile, COVID-19 has also displaced millions of people from Russia&#39;s largest cities. This exodus may depress productivity and tax revenue until population levels recover, which could take several years.<br />&nbsp;<br />International politics will also affect the pace of economic recovery. While the United States seems more intent on challenging China than Russia, Russia&#39;s continued meddling in Western affairs &mdash; such as the recent <a href="/article/putting-solarwinds-hack-geopolitical-context">SolarWinds hack</a> &mdash; will render a genuine reconciliation politically untenable. Instead, the Biden administration and the European Union will certainly maintain, if not intensify, the current suite of sanctions handicapping Russia&#39;s economy. A key trigger for Russia&#39;s 2021 outlook will be the continued construction of the <a href="/situation-report/russia-us-major-us-defense-bill-would-expand-nord-stream-2-sanctions">Nord Stream 2 pipeline</a>. The completion of the project, which remained dormant for most of 2020, would improve Russia&#39;s finances and boost the likelihood of subsequent similar deals. The failure of the project by contrast would prompt Russia to pursue more one-sided deals with China, or to cut costs via reducing its global military footprint in theaters such as Libya or Syria. The economy will play a critical role in September&#39;s legislative elections, helping determine the fate of the ruling United Russia party and offering a <a href="/article/what-12-more-years-putin-means-russia-politics-constitutional-amendments-term-limits">referendum on Putin</a>.<br />&nbsp;</p>

<h3>Russian-Western Relations Continue to Worsen</h3><p>Russian relations with the West will continue to deteriorate in the first year of the <a href="/article/what-biden-presidency-means-europe-us-relations">Biden administration</a>. This deterioration will be caused by Washington&#39;s need to respond to ongoing crises involving Russia, as well as by the administration&#39;s strategic aim of strengthening democracies from authoritarian threats. The Biden administration will have pressing issues with Russia to deal with beyond the SolarWinds hack, including the ongoing <a href="/article/charting-path-protests-power-belarus">political crisis in Belarus</a> and the <a href="/situation-report/russia-hospitalized-opposition-leader-likely-poisoned-says-doctors">attempted assassination</a> of Russian opposition leader Alexei Navalny by Federal Security Bureau officers, all of which will inevitably require a response from the administration that will worsen relations. The Biden administration will also demonstrate increased public support for Ukraine under <a href="/article/ukraines-outsider-president-brings-insiders-fold">Volodymyr Zelenskiy</a>, a stark contrast from the Trump administration that is bound to rankle Moscow.<br />&nbsp;<br />The United States and Russia will, however, begin the year attempting to reestablish a modicum of stability in the realm of arms control. But the conclusion of an extension to the <a href="/article/us-russia-talks-ahead-new-start-s-future-hangs-balance">New START</a> treaty will fail to serve as a springboard for a broader reset of relations, let alone for significant progress in restoring other arms control treaties.<br />&nbsp;<br />Increasing tensions with Russia will manifest themselves materially through sanctions. The Biden administration will aggressively reinterpret <a href="/article/western-sanctions-russia-will-remain-stable-2020-caatsa-united-states">existing sanctions regimes</a> on Russia, most notably upping enforcement of all <a href="/article/caatsa-us-trying-make-russia-hurt">CAATSA provisions</a>, including personal sanctions on Putin&#39;s inner circle. Even if the administration does not go full-bore against Russia, Congress will continue to be the origin for legislation intended to impose costs on Russia&#39;s activities abroad. For example, legislation known as DASKA that has passed the Senate Foreign Relations Committee would sanction Russia&#39;s sovereign debt and LNG projects. This act and ones like it would be interpreted by the Kremlin as a declaration of all-out economic war intended to topple Putin. A chaotic and collapsing Russia is hardly in the U.S. strategic interest, but a similar bill may eventually make it to Biden&#39;s desk, and it would be difficult for him not to sign into law.</p><h3>A Tense Peace in the South Caucasus</h3><p>The present peace in the <a href="/article/southern-caucasus-where-post-soviet-and-neo-ottoman-interests-collide">South Caucasus</a> that ended combat between <a href="/article/cease-fire-will-only-freeze-azerbaijan-and-armenia-s-fight">Armenia and Azerbaijan</a> will be strained in 2021, but serious hostilities will be avoided. While the climate has appeared to stabilize, Armenia&#39;s domestic political situation is a powder keg. The unrest caused by Prime Minister Nikol Pashinyan&#39;s surrender in Nagorno-Karabakh suggests he may be ousted in the coming year by a potentially more aggressive and pro-Russian leader. Further complicating the present peace, Azerbaijani President Ilham Aliyev has also indicated a desire for an even greater role abroad.<br />&nbsp;</p>

<p>Still, a number of factors will constrain a return to full-on war. Azerbaijan has accomplished its key objectives in the region, leaving less to gain from successive conquests. Armenia&#39;s considerable losses meanwhile will also encourage a long period of recovery to restore troop and equipment losses. And further cooperation between Turkey and Russia to keep the peace will prevent serious hostilities, especially considering the deployment of Russian peacekeepers in contested areas.<br />&nbsp;<br />Azerbaijan&#39;s overall success will likely prompt it to seek an even bigger role abroad. Long reliant on Turkey, the Azerbaijani leadership may look to expand ties with powers such as Israel and Pakistan, and even to seek further influence in Central Asia.</p><h3>Belarus&#39; Leader Hangs on, Albeit at the Cost of Concessions to Moscow</h3><p>Aleksandr Lukashenko&#39;s regime will tenuously maintain power in Belarus, although he may have to agree to a succession plan to secure Moscow&#39;s backing. In light of Lukashenko&#39;s diminished stature at home, Russia will <a href="/article/why-russia-wont-rush-lukashenkos-aid-belarus">avoid becoming too closely</a> linked to him. It will continue to withhold the expansive economic support Lukashenko desires, stringing him along with disbursements just large enough to prevent a collapse until he finally rolls out a succession plan. Lukashenko will attempt to delay this process as much as possible in hopes he can stay in power, but he will eventually back down, though perhaps not for a few months.<br />&nbsp;<br />The succession plan will most likely involve largely symbolic constitutional reforms that will culminate in Lukashenko&#39;s leaving the presidency, possibly in favor of another position, such as speaker of parliament. Potential successors will most likely be more amenable to political and economic integration with Russia per Moscow&#39;s wishes.<br />&nbsp;<br />Meanwhile, unrest in Belarus will decline in the winter, but will continue through the spring as the country&#39;s economy stagnates. People and businesses, particularly from the information technology sector, will continue to trickle away to neighboring countries, acting as a pressure release valve of dissent for the regime but also starving the country of desperately needed tax revenues. Opposition leader Svetlana Tikhanovskaya will continue to receive recognition and support from Western leaders, who will steadily <a href="/situation-report/eu-brussels-impose-sanctions-russian-and-belarusian-officials">increase their sanctions</a> on Belarusian officials and the country&#39;s economy as the crisis winds on. Because the Kremlin will not tolerate the opposition assuming power without a carefully negotiated power-sharing agreement, Belarus will become yet another source of friction in Russia&#39;s relations with Europe and the United States for the foreseeable future.<br />&nbsp;</p>

<p><strong>Jan. 10:</strong> Kyrgyz presidential election and constitutional referendum&nbsp;<br /><strong>Jan. 10:</strong> Kazakh legislative and local elections<br /><strong>February 5:</strong> New START Treaty expiration<br /><strong>February 11-12: </strong>Belarusian People&#39;s Assembly&nbsp;<br /><strong>March 8-12: </strong>First in-person meeting of Russia-backed Open-Ended Working Group (OEWG) on cybersecurity<br /><strong>Summer: </strong>Projected window for Nord Stream 2 completion<br /><strong>Summer:</strong> Armenian constitutional referendum<br /><strong>September:</strong> Russia-Belarus Zapad military exercises<br /><strong>September 19:</strong> Russian legislative elections&nbsp;<br /><strong>October 15: </strong>CIS heads of state summit&nbsp;<br />&nbsp;</p>

Eurasia 

Americas

<h3>Argentina&#39;s Economy Will Remain Rickety</h3><p>Argentina&#39;s economic crisis will continue in 2021 as structural issues and electoral calculations prevent the government from introducing policies to reduce its <a href="/article/argentinas-new-debt-deal-just-first-step-its-recovery">fiscal deficit</a>, put inflation under control or restore popular trust in the national currency. A midterm legislative election in October, in which President Alberto Fernandez will seek to retain control of Congress, will prevent the government from lifting the subsidies that benefit its electoral base (and explain a big part of the country&#39;s fiscal deficit and inflationary policies). It will opt instead for policies to increase state revenue at the expense of productive sectors, including higher taxes for large companies, agricultural exporters and wealthier households. Softening of social distancing measures could somewhat boost domestic consumption, but the Argentine economy is unlikely to return to pre-pandemic levels in 2021. Because of lack of confidence in the peso, the government will keep currency and capital controls in place, which will result in Argentines turning to the black market for dollars as sharply diverging official and unofficial exchange rates coexist. Combined with a weakening rule of law, these policies will reinforce a negative business environment that will deter foreign investment. A widespread campaign of nationalizations of private companies is unlikely but specific, one-off, expropriations cannot be ruled out.<br />&nbsp;</p>

<p>The Argentine government will seek to keep negotiations alive with the International Monetary Fund, but Buenos Aires will have limited interest in enforcing the institution&#39;s recommendations in an election year. As a result, the risk of the negotiations collapsing and Buenos Aires defaulting on its debt to the IMF will be significant. The IMF will pressure Buenos Aires to reduce its deficit and make debt sustainable, end the divergence in exchange rates and lift capital controls. But slow or insufficient progress in these areas will reduce markets&#39; trust in Argentina and force Buenos Aires to pay high interest rates to <a href="/article/argentinas-latest-default-doesnt-have-mean-another-economic-collapse">borrow internationally</a>.</p><h3>Brazil Balances Growth Against Debt</h3><p>Brazil&#39;s primary task in 2021 will be maintaining economic growth while making a major fiscal adjustment that reduces or eliminates massive fiscal and monetary stimulus and avoids&nbsp;<a href="/article/what-bolsonaros-new-spending-push-means-brazil-s-fiscal-future">unsustainable debt</a> that could undermine confidence in the government. President Jair Bolsonaro, who will have his eye on reelection in October 2022, may be tempted to tilt toward populism at the expense of economic reform. Brazil went from a stable, albeit low-growth, economic outlook at the beginning of 2020 to entering 2021 with significant imbalances and risks that, while manageable, put it at peril of shocks from lagging global confidence that affect the exchange rate and availability of low-cost financing. Brazil was among the hardest-hit countries by the pandemic, setting back an economy that by end-2019 was already 7% smaller than in 2014. Now, unemployment is much higher than before the pandemic struck, and Brazil has seen a partial loss of gains in reducing poverty and income inequality.<br />&nbsp;<br />A massive fiscal consolidation will be required to stabilize debt just at the current high level of more than 100% of GDP, without which inflation could resurge and potentially force the Banco do Brasil to increase its main policy interest rate in 2021, further <a href="/situation-report/brazil-central-bank-signals-possible-end-low-interest-rates">slowing the economy</a>. One of the most closed major economies in the world, Brazilian growth has lagged other emerging markets for more than 25 years due mainly to a lack of productivity growth. To promote private investment, Bolsonaro would need to restart economic reforms that include trade liberalization, reducing the role of state banks and cutting the cost of doing business. In the absence of reforms to raise potential growth and improve living standards, Brazil faces increasing political risks. Any additional undermining of investor confidence would reduce growth prospects even further, leaving the country highly vulnerable to external shocks and geopolitical tensions.</p><h3>As Washington Back-burners Its Crisis, Venezuela&#39;s Slow Decay Continues</h3><p>Venezuelan President Nicolas Maduro will manage to survive another year under intense U.S. sanctions as the challenge from opposition leader Juan Guaido <a href="/article/legislative-elections-risk-leaving-venezuela-s-opposition-shambles">continues to evaporate</a>. The two-year-long attempt by Guaido to use international recognition as a transitional president to generate domestic support among key Venezuelan institutions has largely failed, and will likely continue to struggle &mdash; particularly after boycotted National Assembly elections in December 2020. The crushing weight of U.S. sanctions will continue to significantly impact the Venezuelan economy despite a change in U.S. administrations, and Caracas will be forced to rely on external support to withstand the economic pressure. Increasingly, this means Iranian support in the form of gasoline.<br />&nbsp;</p>

<p>Maduro will press for a restart on political negotiations with the United States that would result in immunity for top officials and a relaxation of sanctions, but the incoming Biden administration is not likely to put the Venezuela issue at the top of its agenda. Reversing U.S. Venezuelan policy would cost Biden capital he would prefer to use on more pressing foreign and domestic policy issues, such as negotiations with Iran or domestic social spending. Washington could, however, reduce the intensity of new sanctions and press for some humanitarian-related relief.</p><h3>U.S. Mexico Policy Reverts to Form, Lopez Obrador Seeks More Control</h3><p>U.S. President-elect Joe Biden will broaden Washington&#39;s approach to Mexico to include a new emphasis on institutional and governance issues such as the rule of law, corruption, human rights and labor concerns, and environmental issues, as well as the perennial bilateral issues of trade and <a href="/article/us-mexico-border-crossings-are-poised-grow-2021">immigration</a>. This broadened agenda will probably increase tensions with Mexican President Andres Manuel Lopez Obrador over elements of his populist and nationalist platform. Managing immigration flows, particularly as Latin America has been hit hard by COVID-19 and the global economic crisis, will remain a challenge for the new U.S. president. But the United States will not use the sort of aggressive threats the Trump administration did, such as withdrawing from NAFTA and placing significant tariffs on the Mexican economy, to force local governments to crack down on migrant flows. To go along with linking to human trafficking and migrant flow cooperation, the United States will link economic and other forms of bilateral assistance to Mexico and Central America to governance, corruption, democracy and human rights issues. Moreover, the Biden administration is likely to aggressively use new clauses in the United States-Mexico-Canada Agreement regarding environmental and labor policies in its attempt to force Mexico to implement higher environmental and labor standards.<br />&nbsp;</p>

<p>Domestically, Lopez Obrador will focus on strengthening his and the National Regeneration Movement&#39;s (MORENA) political mandate in 2021 midterm elections. Populist anti-corruption charges and investigations into rival parties and previous governments will continue in the lead-up to the vote. If MORENA can gain more seats, Lopez Obrador will become more aggressive in implementing populist policies, most notably those related to the country&#39;s embattled economy and oil and gas sector. Mexico will continue to make investments in the energy sector more difficult for foreign companies and <a href="/article/pemex-s-losses-deepen-mexico-s-financial-woes">prioritize Petroleos Mexicanos</a> (Pemex) and other state-owned enterprises over foreign competitors. But if MORENA performs well in midterms, constitutional reform or broader legal rollback of Mexico&#39;s 2014 energy reforms may begin. Mexico will start to see its economy recover in 2021 from the COVID-19 pandemic. But it is unlikely to see its economy reach pre-pandemic highs as the underlying industrial slowdown in Mexico that began before the pandemic and Lopez Obrador&#39;s aggressive populist policies and limited response to COVID-19 hobble Mexico&#39;s recovery.<br />&nbsp;</p>

<p><strong>January&nbsp;20:</strong>&nbsp;US President and Vice President Inauguration<br /><strong>April:</strong>&nbsp;Presidential elections in Peru and Chile<br /><strong>April 5-11:</strong>&nbsp;IMF and World Bank Spring Meetings<br /><strong>April 19:</strong>&nbsp;Raul Castro plans to resign as First Secretary of the Cuban Communist Party<br /><strong>July:</strong> Midterm congressional elections in Mexico<br /><strong>October 11-17:</strong>&nbsp;IMF and World Bank Annual Meetings in Washington, DC<br />&nbsp;</p>

South Asia

<h3>Peace Talks Founder in Afghanistan</h3><p><a href="/article/afghanistans-new-offensive-against-taliban-halts-peace-talks-kabul-us-security-ghani">Intra-Afghan peace talks</a> will fail to yield a peace agreement. Meanwhile, external powers will use the U.S. drawdown as an opportunity to achieve their counterterrorism and border security objectives by bolstering their favored faction&#39;s bid for power in the postwar order. Such a push will stall negotiations and perpetuate Afghanistan&#39;s fragile economy &mdash; a particular problem since a portion of U.S. aid has been conditioned on consistent progress toward peace.<br />&nbsp;<br />As the jostling for control of the Afghan government continues, a weak police force and judicial system will fail to control crime and corruption, leading to increased violence and the threat of spillover into neighboring regions. This will bring increased interest and involvement from surrounding powers. Iran will want the new government to prioritize counterterrorism efforts to keep the local Islamic State branch in check. Counterterrorism priorities will also propel China and India to become more involved. But a strong post-peace Afghan government would derail Pakistan&#39;s plans to secure its shared border with the nation, particularly along the contested border, which has seen spouts of violence between Pakistani and Afghan forces.<br />&nbsp;</p>

<h3>High Economic Growth Will Mask Underlying Issues in India</h3><p>The Indian economy will be one of the fastest growing in the world in 2021, but despite growth anticipated to reach as high as 8 or 9 percent, India&#39;s economy is unlikely to reach pre-pandemic levels of economic output during the year. For India, among the countries hit the hardest by COVID-19, even returning to close-to-normal levels of economic output will mean high growth figures. Politically, the high growth rates will aid Prime Minister Narendra Modi and his economic platform, but they mask the significant challenges he faces in implementing enough economic reforms to make growth more sustainable in the long run.<br />&nbsp;</p>

<p>Modi will attempt to pass structural economic reforms, such as more financial sector and infrastructure reforms, and to expand privatization of central government assets. But these will continue to hit roadblocks in the form of political and popular resistance. Modi&#39;s previous sets of reforms, including landmark reforms relating to the <a href="/article/india-modi-bets-farm-controversial-economic-reforms">agricultural sector</a> and bankruptcy code, have been hobbled by public opposition, like the 2020 farmers protests, or implementation challenges. Although the ruling Bharatiya Janata Party (BJP) retains the ability to pass some of the reforms through legislation at the national level, its unpopularity and frequent need to work with rival parties at the state level will result in a public backlash against reforms and implementation challenges, blunting their effectiveness. Beyond delays surrounding the implementation of reforms, demonstrations and protests against the changes will be increasingly common, particularly as COVID-19 restrictions are relaxed. While at the state level popular opposition will be significant and the BJP will need to work to ensure that it doesn&#39;t lose support in India&#39;s five state elections scheduled for 2021, the national level will be another story. Modi and the BJP will not see their control of the national government threatened, since the opposition remains largely fragmented into regional parties and the main national challenger, the Indian National Congress, is undermined by internal turmoil.</p><h3>Easing Tensions on the Chinese-Indian Frontier</h3><p>Tensions along the Sino-Indian border will ease temporarily in 2021 even as both sides continue infrastructure development and expanding forces on their respective sides. Both China and India have maintained robust forward positioning of forces along the western section of the frontier <a href="/article/china-moves-freeze-its-border-dispute-india-winter-does">through the winter</a>, limiting the space for another spring surprise. China might seek limited gains to get closer to its 1959 boundary claim, but China and India will focus on reinforcing their current positions and strengthening the communications and transportation infrastructure to facilitate sustained and surge operations along the Line of Actual Control separating them. Beijing&#39;s attention to post-COVID economic gains and its desire to ease international political pressure as it celebrates the 100th anniversary of the Communist Party of China and prepares to host the 2022 Winter Olympics will also temper its actions on the disputed border.<br />&nbsp;</p>

<p><strong>May-June:</strong>&nbsp;State Legislative Assembly Elections in the Indian states of Assam, Kerala, Puducherry, Tamil Nadu and West Bengal.<br /><strong>TBA:</strong>&nbsp;India Hosts the 13th BRICS Summit<br />&nbsp;</p>

Sub-Saharan Africa 

<h3>Economies Struggle Across the Region&nbsp;</h3><p>Despite most sub-Saharan African countries avoiding the worst of the COVID-19 pandemic itself, many African countries will continue to be hit hard economically in 2021 due to the sluggish global economic recovery outside of China. This will exacerbate fiscal and economic challenges that countries are already facing, with Zambia, Angola, Nigeria and South Africa among the Continent&#39;s most fragile countries. Zambia, in particular, could be an important litmus test around <a href="/article/zambia-s-imminent-debt-default">debt restructuring </a>negotiations, but the process will be messy and last beyond the August presidential elections. Most countries will have to secure financing and make decisions about defaults on an ad hoc basis as a broader global push for debt relief fails. Nevertheless, the economic recovery will see an increased opening in international debt markets for several African countries to tap into, such as Ghana.</p><h3>South Africa Begins Its Years-Long Recovery From COVID-19</h3><p>South Africa will face a long, slow and <a href="/article/south-africas-budget-outlook-paints-picture-lost-decade">difficult economic recovery</a> from COVID-19. The country will technically exit its recession in 2021, but it will still end the year far below pre-pandemic levels of economic output. Growth is unlikely to be above 4 percent year-on-year as many of the structural issues that plunged South Africa into a recession before COVID-19 broke out &mdash; including fiscal fragility, corruption, inequality, inefficient state-owned enterprises (SOEs) and rising wage bills &mdash; will hobble its recovery. The South African government will maintain its austerity measures as it targets fiscal consolidation by the mid-2020s and will rebuff calls for expansionary spending. COVID-19 vaccines will start being distributed across the country in early 2021, though the rollout process is expected to last well into 2022. In the meantime, South Africa will likely see a slight resurgence of COVID-19 cases during its 2021 winter.&nbsp;<br />&nbsp;</p>

<p>President Cyril Ramaphosa will continue to <a href="/article/south-africa-s-economic-reality-will-dim-any-hopes-quick-recovery">propose substantial reforms</a> to address the country&#39;s structural economic issues, but gridlock inside the ruling African National Congress (ANC) will continue to block significant progress on pro-business reforms opposed by labor unions. Amid slow progress on reforms, public pressure on the ANC will continue to mount. Ramaphosa will aim to channel public dissatisfaction with the socio-economic environment into furthering an ongoing anti-corruption campaign into allies, many of which are associated with former President Jacob Zuma. Ramaphosa will have limited success in deflecting all public criticism to political rivals, but upcoming municipal elections will provide a critical litmus test to that end. If the ANC suffers significant losses to rival parties, internal pressure on Ramaphosa and his allies in the ANC will rise, potentially leading to calls for Ramaphosa to step down.&nbsp;</p><h3>Greater Support for Counterterrorism Efforts in Mozambique&nbsp;</h3><p>The rising threat to both regional countries and energy-related investment in northern Mozambique by al Sunnah wa Jama&#39;ah (ASWJ), the local branch of the Islamic State Central African Province, will spur greater support to <a href="/article/insurgent-offensive-looms-large-over-mozambiques-energy-projects">Mozambique to combat the insurgency</a>. The increased support will include cross-border coordination between Tanzania and Mozambique, as well as financial and training assistance from the European Union, the United States and Southern African Development Community (SADC). While such support will make the Mozambique Defence Armed Forces more capable in fighting ASWJ, it will not be at the level needed to prevent the local Islamic State affiliate from gaining strength in 2021. Mozambican President Felipe Nyusi will still oppose a significant multilateral intervention in the country. Nonetheless, momentum behind a limited intervention by either the SADC&#39;s Standby Brigade or neighboring countries will continue to grow in parallel with ASWJ&#39;s capabilities and scope of attacks. Such an intervention would be more effective in curbing or containing militant activities. But until that happens, ASWJ will continue to see its geographical range expand further into central and northern Mozambique, with the potential for sporadic attacks along the Tanzanian border region as well.&nbsp;<br />&nbsp;</p>

<h3>Abiy&#39;s Attempts to Centralize Political Control Risk Backfiring</h3><p>Ethiopian Prime Minister Abiy Ahmed will face continued pushback ahead of elections tentatively planned for mid-2021, as he tries to use the takeover of Mekele in the <a href="/article/what-s-stake-ethiopia-barrels-toward-civil-war">Tigray conflict</a> as momentum behind consolidating federal control and reducing the autonomy of Ethiopia&#39;s individual regions and their ethnic groups. Many of his political allies, including ethnic Amhara leaders, will back him. But election results elsewhere in the country will be a test of both Abiy&#39;s overall strength and strategy. Abiy enjoyed widespread support from a number of groups in Ethiopia in launching the offensive against the Tigray People&#39;s Liberation Front (TPLF) due to Ethiopians general animosity toward the TPLF following its brutal 20-year reign over the country. But any of that support Abiy has built up <a href="/article/conflict-tigray-has-major-implications-ethiopia-and-region">will evaporate</a> as he continues to consolidate political power, and as his Amhara political allies attempt to take advantage of their empowered position.&nbsp;</p><p>The outcome of negotiations between Ethiopia, Sudan and Egypt over the <a href="/article/grand-ethiopian-renaissance-dam-filling-its-reservoir-whats-next">Grand Ethiopian Renaissance Dam</a> will also impact Abiy&#39;s political strength, as any failure to continue filling the dam as planned in the summer will only further damage his credibility and legitimacy as a leader. Boycotts, particularly in the Oromia and Tigray regions, will risk undermining the legitimacy of the election outcome as well, no matter who wins.&nbsp;<br />&nbsp;</p>

<p>The federal government&#39;s heightened tensions with local governments and ethnic groups will continue to make Ethiopia&#39;s security environment prone to violence, protests and crackdowns. In Tigray, the TPLF will likely continue to exist as a low-intensity insurgency and many local actors will reject the Ethiopian-appointed state leadership. Moreover, the Amhara region will probably try to expand its de-jure control over what it views as historical parts of its territory in the Tigray Region. Violence in other periphery regions, including Somali and Oromo, will likely also be frequent, as will political crackdowns ahead of elections.&nbsp;</p><h3>Widening Political Rifts Risk Violence in Kenya</h3><p>Divisions between Kenyan President Uhuru Kenyatta and Deputy President William Ruto will widen in 2021, as Kenyatta pushes through reforms aimed at restructuring the Kenyan state and its political systems under the government&#39;s so-called Building Bridges Initiative. Ruto has been effectively sidelined from parts of the ruling government as Kenyatta has forged a closer political relationship with opposition leader Raila Odinga through the Building Bridges Initiative. Kenyatta and Odinga will attempt to push through their version reforms next year, most likely through a referendum, and Ruto will likely have limited input. Ruto and his political allies will view Kenyatta&#39;s coordination with Odinga on the initiative as a potential political pact that could cut off the ambitious deputy president&#39;s path to the presidency in 2023. By drawing faultlines similar to the 2007 election crisis that Kenya endured, this will carry the risk of spurring violence from Ruto&#39;s allies in Kenya&#39;s highly ethnically-based political system.&nbsp;</p><p>The <a href="/article/kenya-stage-set-another-tumultuous-election-season">heightened political risk</a> will also come at a strenuous time for the Kenyan economy, which was once one of Africa&#39;s top investment destinations. As they try to forge political support, Kenyatta and Odinga will aim to accelerate Kenya&#39;s economic recovery from the COVID-19 pandemic. This will translate to more debt-fueled growth, which is already unnerving investors by casting doubt on the sustainability of Kenya&#39;s growth model. Barring a second pandemic-induced recession, however, Kenya remains unlikely to face a full-blown financial crisis in 2021.<br />&nbsp;</p>

Key Trends for 2021 

<p><strong>January&nbsp;14:&nbsp;</strong>Uganda presidential election<br /><strong>February&nbsp;8:&nbsp;</strong>Somalia presidential election<br /><strong>February:&nbsp;</strong>South African Finance Minister updates budget<br /><strong>March:</strong>&nbsp;Republic of the Congo presidential election<br /><strong>April 10:</strong>&nbsp;Chad presidential election<br /><strong>April 11: </strong>Benin presidential election<br /><strong>June:</strong>&nbsp;Possible Kenyan BBI referendum<br /><strong>August:</strong>&nbsp;Planned South African municipal elections<br /><strong>August&nbsp;12:&nbsp;</strong>Zambia presidential election<br /><strong>December&nbsp;4:</strong>&nbsp;The Gambia presidential election<br />&nbsp;</p>

2021 ANNUAL FORECAST

Global Trends

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