Europe

A lingering energy crisis and monetary tightening will negatively impact economic activity across the world in the fourth quarter, leading to heightened social, political and economic risk.

Quarterly

Global Trends

<p>Europe&#39;s energy crisis will deepen during the fourth quarter with continued high natural gas and electricity prices likely to cause significant financial turmoil for households and businesses by the end of the winter. Efforts by European governments &mdash; including price caps on electricity generated by renewable energy, interventions in the electricity market and subsidies &mdash; will partially, but not entirely, mitigate the crisis as Russia&#39;s Gazprom continues to keep natural gas exports at historical lows. By keeping natural gas flows low, the Kremlin hopes to <a href="/article/what-watch-eu-sanctions-russian-oil">break EU resolve on sanctions</a>. But for the fourth quarter, at least, Moscow&#39;s strategy is unlikely to work. This is because the European winter typically does not peak until January and February and despite restricted gas flows, most European gas storage levels will be at a satisfactory level heading into the winter. Russia is unlikely to fully cut off natural gas to Europe for months at a time unless the European Union adopts a price cap on Russian natural gas, which is unlikely. Even if such a cap is implemented, it would only partially bring down gas prices because it would not cover imports of high-priced LNG. In the meantime, the <a href="/article/more-successful-g-7-oil-price-cap-russia-more-risk-it-brings">G-7 price cap</a> on Russian oil is likely to have only a limited effect on oil prices, as the G-7 is unlikely to back it with strong enough enforcement mechanisms to get China and India to adopt it. Still, the risk exists that Russia might be unable to sell some of its oil to those countries and decide to cut back production &mdash; which could lead to oil prices spiking and exacerbating Europe, and the world&#39;s, energy crisis.&nbsp;<br />&nbsp;</p>

Europe's Energy Crisis Deepens With or Without a Gas Cutoff

<p>High energy prices and high inflation will lead the Fed and most other Western central banks to continue <a href="/article/us-strong-dollar-risks-renewing-calls-protectionist-trade-policies">tightening monetary policy</a> to bring down inflation, choking off growth and potentially leading to recessions in most of the West at some point. A recession would become even more likely if Russia keeps gas flows to Northern Europe near zero, because it would force most European governments to reduce energy consumption, which would negatively impact economic activity. Fourth-quarter economic growth in the United States, <a href="/article/implications-weakening-uk-pound">United Kingdom</a> and the euro area is likely to remain low &mdash; and likely negative in a handful of countries &mdash; but this is unlikely to deter central banks from increasing interest rates. Eventually, the aggressive monetary policy will contribute to higher unemployment, but this will not materialize until 2023 because labor markets are currently tight in the United States and most of Europe. Separately, the energy crisis will force European governments to increase public spending to assist households and businesses, which will lead to higher accumulation of government debt. Coupled with rising borrowing costs caused by interest rate hikes, this will create the risk of debt crises and constrain governments&#39; ability to stimulate the economy if the recessions are deeper and longer than anticipated.&nbsp;<br />&nbsp;</p>

The West Teeters on the Brink of Recession

<p>The Russo-Ukrainian war will drag on through the end of 2022 without meaningful movement toward a cease-fire and neither side will be able to make decisive territorial gains despite <a href="/article/partial-military-mobilization-and-annexations-ukraine-putin-again-ups-stakes-his-war">Russia&#39;s mobilization efforts</a>, which will take months to fully materialize. The war&#39;s longevity and deepening energy crisis will spark discussion in European capitals on whether to continue its sanctions strategy, and some EU governments may even openly call for a lifting of sanctions. But a decision will not be made until 2023, and for now, the West will continue to support Ukraine and additional (albeit modest) sanctions are likely in retaliation for Russia&rsquo;s annexation referendums in occupied parts of Ukraine. As winter approaches, both Ukraine and Russia will try to expand their geographical footholds. Once winter arrives, however, harsher transport conditions (roads freezing, muddy ground, etc.) will constrain Moscow&#39;s ability to mobilize more resources to send to Ukraine. In the meantime, Ukraine is unlikely to have the manpower and resources needed to retake significant portions of Russian-held territory in places like Kherson despite its recent successes in Kharkiv. The United States will maintain a hard line on Russia and, along with some Eastern European allies, will provide the bulk of military support to Ukraine to ward off Russian forces. The United States will not, however, escalate to secondary sanctions on Russian oil exports due to concerns about causing oil prices to skyrocket. While European leaders will face more pressure to engage with Russia to alleviate the Continent&#39;s energy crisis, the key decision point will only arrive in January 2023, when EU sanctions against Russia come up for renewal.&nbsp;</p>

The Russo-Ukrainian War Drags on as Sanctions Remain

<p>Strong European demand for liquefied natural gas will keep global natural gas prices high for other gas-importing countries. This will undermine economic growth in countries like India and Japan, and fuel additional social unrest and political instability in low income energy importing countries such as <a href="/article/pakistans-floods-economic-political-and-security-fallout">Pakistan</a>, Bangladesh and Ghana. In Japan and South Korea, high LNG prices will result in significant pressure on industrial consumers to reduce electricity consumption, and may result in more widespread power outages in Japan during a cold snap. In China, high LNG prices will spur the government to back greater coal use during the winter, but this will expose the fragility of China&#39;s coal-transport system and <a href="/article/obstacles-china-will-face-fixing-its-energy-grid">overall grid interconnectivity</a> and could result in some localized power shortages due to insufficient coal. In South Asia and Africa, many governments will struggle to import LNG and oil at global prices, particularly if they spike further due to a worsening energy crisis in Europe. This will result in acute fuel and electricity shortages. And it will open the door to financial crises if governments are forced to increase fiscal spending and foreign borrowing to finance energy imports, and to more political unrest in some countries. In the Americas, high oil prices will lead to more pressure on governments to keep fuel prices low despite the continued strain on social spending programs and controlled prices.&nbsp;<br />&nbsp;</p>

Europe's Energy Crisis Reverberates through Africa, the Americas and Asia

Asia-Pacific

<h3>Party Congress to Reveal China&#39;s Five-Year Policy Outlook</h3><p>China&#39;s Party Congress will see Xi Jinping begin a third term and the Politburo restaffed, which will probably result in the continuation of current political and economic priorities over the next five years. Beijing will host the 20th Chinese Communist Party Congress on Oct. 16, during which Xi Jinping will be appointed for a <a href="/article/ccps-100th-anniversary-paves-way-xis-third-term">third five-year term</a> as general secretary, the most powerful office in China. The congress will also staff top CCP positions for the next five years, including for the roughly 400-person Central Committee as well as the elite 25-person Politburo and the 7-person Politburo Standing Committee, which is effectively Xi&#39;s Cabinet. The meeting will also see many bureaucratic offices filled, including the role of premier, who is the head of the government but still subordinate to Xi. These appointments will be a strong indicator of China&#39;s political and economic trajectory over the next five years. If, as is likely, these seats are predominantly filled by cadres with close professional and/or political affiliations with Xi, China&#39;s current political and economic trends will continue, including privileging strongman rule over collective leadership, the <a href="/article/china-s-family-education-law-portends-unrest-and-political-opposition">politicization of society</a> (including state guidance of industry and <a href="/article/protesting-xinjiang-cotton-western-companies-incite-china-s-ire">anti-Western consumer sentiment</a>), the persistence of the &quot;<a href="/article/how-much-longer-can-china-maintain-its-zero-covid-strategy">zero-COVID</a>&quot; strategy (potentially through mid-2023), and the <a href="/article/why-china-bailed-out-huarong-and-not-evergrande">deleveraging of real estate</a> and <a href="/article/what-beijing-s-aid-debt-ridden-guizhou-presages-china-s-economy">local government budgets</a>, which will weigh heavily on economic growth in 2022-2023. In the unlikely event that more pragmatic and apolitical bureaucrats are appointed, these deleveraging campaigns will ease, zero-COVID may begin to loosen by the end of 2022, and China&#39;s market and political antagonism with the West may abate, though only gradually.</p><h3>Taiwan Tensions Will Persist, but Escalation Unlikely</h3><p>While Western politicians will continue to visit Taiwan, China&#39;s retaliation will be moderate as long as the visits remain low-profile. Western legislative delegations and public officials will continue to visit Taipei during the quarter, leading China to respond with aerial and naval incursions across the Taiwan Strait median line and regular surveillance of Taiwan&#39;s coasts. But Beijing will not <a href="/article/evolving-taiwan-china-relationship-part-1-economy">retaliate with a trade war</a> or an <a href="/article/what-could-push-china-invade-taiwan">invasion of Taiwan</a> because the visits will likely involve low level figures (less politically powerful and less confrontational on human rights issues than U.S. House Speaker Nancy Pelosi) and because China wants to minimize trade tensions when possible rather than risk more shipping disruptions from, for example, blockades of Taiwan&#39;s ports. This means that U.S. Democratic and Republican candidates will compete to show their anti-China credentials with visits to Taiwan ahead of the Nov. midterm elections, China is unlikely to resume the large-scale, <a href="/article/what-make-chinas-military-drills-near-taiwan">live-fire military drills</a> that followed Pelosi&#39;s Aug. 2-3 visit to Taipei as long as the visits remain low-profile. Similarly, <a href="/article/evolving-taiwan-china-relationship-part-2-politics">Taiwan&#39;s local elections in November</a> could anger Beijing if the ruling Democratic Progressive Party gains seats, but Chinese retaliation will remain limited compared with the August drills because Beijing tends to cut off symbolic ties (e.g., cross-strait engagement bodies) due to elections, and because local elections are less meaningful for Taiwan&#39;s politics than are general elections.</p>

<h3>Southeast Asian Economic Recovery Will Lag</h3><p>Continued Chinese lockdowns and weaker consumer demand in the West will strain budgets and limit economic growth in Southeast Asia. During the quarter, low Chinese factory output connected to intermittent lockdowns will <a href="/article/can-china-s-economy-shake-its-second-quarter-slump">reduce the supply of goods</a> needed for Southeast Asian factories, resulting in a contraction in manufacturing output in the region. The <a href="/article/prolonged-absence-chinese-visitors-will-plague-southeast-asias-economic-recovery">decrease in Chinese tourists</a> (who make up roughly 50% of the tourists in a sector that employs up to 20% of the labor force in Southeast Asia) will also negatively impact economic activity in the region. Finally, monetary policy tightening and looming recessions in the United States and the European Union will reduce demand, which will negatively impact Southeast Asian exports. This weakening economic environment will further strain national budgets as governments continue subsidizing high fuel and food costs amid decreasing tax revenue. As a result, many governments may raise food and fuel prices to alleviate their fiscal deficits, which will open the door to social unrest, especially in countries like Indonesia. Laos specifically will be perilously close to defaulting on its loan obligations from infrastructure projects to China, its main creditor. While Beijing is likely to provide financial assistance to Vientiane due to its strategic significance in China&#39;s regional infrastructure plans, a default would result in increased emigration to neighboring Vietnam, Cambodia and Thailand as Laotians look for employment, especially in manufacturing and agriculture. Additionally, countries will prioritize domestic food supplies, meaning further food export restrictions are likely. In Malaysia, the potential replacement of Prime Minister Ismail Sabri Yaakob following snap elections could slow Kuala Lumpur&#39;s implementation of economic recovery policies including measures aimed at reducing inflation and food prices.</p>

<h3>Thai Political Uncertainty Stokes Social Unrest&nbsp;</h3><p>An ongoing push to unseat Thai Prime Minister Prayut Chan-ocha could prompt large-scale protests and is indicative of the threats to political stability as economic woes worsen. Prayut is currently suspended pending a Supreme Court hearing on the <a href="/article/thailand-faces-transition-junta-military-favored-rule">constitutionality of his term limit</a>. Regardless of the outcome to the initial ruling scheduled for Sep. 30, the case will likely spark public outrage, particularly given that his most likely replacement would be a loyal deputy from the same ruling <a href="/article/gauging-thai-government-s-response-growing-protests">military-affiliated Palang Pracharat party</a>. The ruling coalition could also use the political chaos to call early elections (due by March 2023), which, as in 2019, would draw criticism of favoritism against Palang Pracharat or even of election fixing. This confluence of events could lead to widespread protests that would disrupt the movement of goods and people and to a <a href="/article/thai-government-will-ensure-protests-only-get-so-far">subsequent crackdown</a>, something seen before. Economic conditions could also fuel protests as consumer prices rise and tourism remains deflated along with consumption in Thailand&#39;s U.S. and China export markets. In a low probability, but high impact scenario, if factory workers &mdash; a demographic that has engaged in protests numerous times in recent years to oppose labor conditions &mdash; join the protests, Thailand&#39;s exports of machinery, vehicles and intermediate manufactured goods to China, the United States, Japan and Vietnam could be disrupted. But this situation is improbable because organized labor is unlikely to contribute to politically focused protests not focused on their primary concerns.<br />&nbsp;</p>

Key Trends for the Quarter

<p><strong>Oct. 16: </strong>China will commence its 20th Party Congress<br /><strong>Nov. 10-13:</strong> ASEAN will hold its 40th and 41st summits and assign a new chair for 2023 in Phnom Penh, Cambodia<br /><strong>Nov. 15-16: </strong>G-20 Leaders&#39; Summit in Bali, Indonesia<br /><strong>Nov. 18:</strong> Asia-Pacific Economic Cooperation summit in Bangkok<br /><strong>Nov. 26:</strong>&nbsp;Taiwan holds local elections</p>

Key Dates to Watch

<h3>A Slowing Economy Raises Social and Political Risks</h3><p>A combination of high inflation, high energy prices, lingering geopolitical uncertainty and monetary tightening will slow economic activity in Europe during the quarter and increase social and political risks. Inflation will remain high in Europe, driven primarily by <a href="/article/what-russias-indefinite-nord-stream-1-cut-means-europe-s-energy-crisis">pervasively high energy prices</a>. To mitigate inflation, the European Central Bank and the Bank of England will continue with their monetary policy tightening, which will make credit increasingly expensive for governments, businesses and households and curtail economic activity. The worsening of the cost-of-living crisis will result in a heightened risk of <a href="/article/europes-inflation-crisis-raises-risk-social-and-labor-unrest">labor activism and social unrest</a> across the Continent. Strikes and demonstrations are likely throughout the quarter (including in countries like France, Spain and the United Kingdom), some of which will disrupt the movement of goods and people. There will be a low but continued risk of social and labor unrest resulting in political crises, especially in countries led by minority governments or fragile coalitions. Unrest due to the cost of living is likely to overlap with demands by some sections of the population for governments to raise sanctions against Russia to ease the energy crisis, but not to the point of changing the EU or U.K. position on the conflict in Ukraine. European governments will seek to mitigate social unrest through subsidies and financial aid (especially to cope with rising energy bills) but this will come at the expense of continuously high fiscal spending and rising debt levels. Windfall taxes on large businesses, particularly upstream energy companies and banks, are probable as governments look for additional sources of state revenue.&nbsp;</p>

<h3>Despite Progress Preparing for Winter, Europe Remains Exposed to Energy Prices</h3><p>European countries will continue to increase gas storage levels, switch to alternative fuels, diversify supply and reduce overall gas consumption, but will remain exposed to the political and economic impacts of high energy prices and further reductions in Russian natural gas supplies. Russia will continue to manipulate the flow of natural gas into Europe for political reasons, which will keep <a href="/article/severe-drought-turns-heat-europe-s-economic-and-energy-crises">energy prices high</a> for European households and businesses. Against this backdrop, most European countries will continue to increase their natural gas storage before the winter but many will have to implement consumption cuts and rationing cannot be ruled out, harming economic activity. While LNG will remain the main alternative to make up for losses in volumes from Russia, only a handful of floating storage regasification units will be operational by the end of the year, meaning the risk of insufficient supply during the winter will persist, putting pressure on governments to find temporary solutions. Separately, rising flows of crude and oil products (mostly diesel) from Asia and the Middle East will support gas-to-oil switching trends in Europe throughout the quarter and help the European Union to reduce its reliance on Russia before a ban on Russia&#39;s seaborne crude oil enters force in December and before one on oil products enters force in February 2023.&nbsp;</p>

<h3>Politics Will Delay Economic Policy in Italy, Germany and France</h3><p>Political events in Italy, Germany and France will delay the implementation of policies to tackle the cost-of-living crisis, but not to the point of risking government collapse. Italy&#39;s new populist government is likely to cause some turbulence in debt markets over fears that Rome will abandon debt-reducing measures and economic reforms. But this will not result in a financial crisis because while Rome will announce modest tax cuts and spending hikes that will raise concerns about long-term fiscal sustainability, it will <a href="/article/far-right-looks-set-win-italy-s-early-election-here-s-what-means">not move drastically</a> away from the economic reforms that the previous administration promised to the European Union in exchange for relief funds and grants. Moreover, the ECB will remain willing to intervene in debt markets to mitigate any drastic jumps in borrowing costs among eurozone members unjustified by economic fundamentals. The new Italian government will clash with the European Union on issues such as immigration and EU supervision of its domestic affairs, but not to the point of risking an Italian exit from the bloc. In Germany, the members of the coalition government will disagree on matters like additional measures to alleviate the cost of living crisis and the scale of Germany&#39;s financial and military support for Ukraine. This will result in a disjointed policy process and some degree of regulatory uncertainty that will reduce the speed and effectiveness of policy responses, but not to the point of bringing about the government&#39;s collapse. In France, President Emmanuel Macron will push to reform the pensions system and the unemployment insurance scheme to make them more sustainable. But he will <a href="/article/france-fragmented-legislature-bodes-ill-macron-s-policy-agenda">depend on support</a> from opposition parties in Parliament, which will greatly slow the reform process and force the government to make concessions likely to result in higher spending.&nbsp;</p><h3>EU, U.K. Trade War Possible, but Free Trade Deal Collapse Unlikely</h3><p>The risk of a trade war between the European Union and the United Kingdom over unfinished Brexit issues will remain high, but the collapse of their free trade agreement is improbable. The new British government will <a href="/article/liz-trusss-first-priorities-uk-prime-minister">push to reform</a> the Northern Ireland protocol (which establishes customs controls at the Irish Sea), arguing that it disrupts trade between Great Britain and Northern Ireland and threatens peace in Northern Ireland. While Brussels will be willing to make symbolic concessions to secure a compromise, it will insist on preserving some customs controls. As a result, London will move forward with legislation to unilaterally override the protocol, though Parliament may not approve it during the quarter because of resistance in the House of Lords. London may even suspend the protocol through its Article 16, which would trigger an arbitration period that could delay any punitive measures from Brussels. This means that while the risk of tit-for-tat tariff hikes and other punitive measures between the United Kingdom and the European Union will remain high, a negotiated solution to the dispute is still possible because both are interested in preventing the collapse of their <a href="/article/eu-and-uk-reach-trade-deal-ending-brexit-what-now">trade and security agreement</a> at a time of worsening economic conditions and geopolitical uncertainty connected to the war in Ukraine. Domestically, the new British government will spend billions of pounds on measures to freeze energy bills for households and businesses. While this will somewhat mitigate the cost of living crisis, it will also result in a significant increase in borrowing that could eventually create financial troubles.&nbsp;<br />&nbsp;</p>

<p><strong>Oct. 1:</strong>&nbsp;Parliamentary elections in Latvia<br /><strong>Oct. 2:</strong>&nbsp;General elections in Bosnia-Herzegovina<br /><strong>Oct. 2:</strong>&nbsp;Parliamentary elections in Bulgaria<br /><strong>Oct. 6-7:</strong>&nbsp;Meeting of EU heads of state or government in Prague<br /><strong>Oct. 9:</strong>&nbsp;Presidential election in Austria<br /><strong>Oct. 20-21:</strong>&nbsp;European Council summit<br /><strong>Dec. 15-16:</strong>&nbsp;European Council summit<br />&nbsp;</p>

Middle East and North Africa

<h3>The Chances of a Return to the Iran Nuclear Deal Remain Remote</h3><p>A deal between Iranian and Western negotiators for a return to compliance with the 2015 Joint Comprehensive Plan of Action is possible, but unlikely, before the end of the year, increasing the risk of a regional conflict. <a href="/article/what-watch-iran-nuclear-talks-resume">Negotiations are on a razor&#39;s edge</a> over the final suggested EU draft text and the U.S. and Iran&#39;s <a href="/article/iran-revived-nuclear-deal-would-unlikely-offer-widespread-economic-relief">competing demands,</a> and will continue to face sticking points like whether Iran will adhere to an International Atomic Energy Agency probe and Washington&#39;s inability to guarantee that future White House administrations will adhere to the deal. Without an agreement, the lack of limits on Iran&#39;s nuclear program and worsening Iran-U.S. relations raise the risk of regional conflict, especially between Israel and Iran since Israel will increasingly seek to attack Iran&#39;s nuclear program and to strike in proxy theaters like Iraq and <a href="/article/deal-or-no-nuclear-deal-us-iran-skirmishes-syria-are-here-stay">Syria</a>. If talks break down entirely, it is unlikely that new negotiations over another agreement could materialize in the coming months or years because of the growing distrust between negotiators. This would make relations between Iran and the West even worse, pushing Iran to expand its economic ties with China, Russia and other countries not allied with the United States.</p><h3>Slowing Growth in North Africa</h3><p>High inflation and currency volatility in Egypt will slow growth and push the government to undertake politically risky financial reforms to improve Cairo&#39;s chances of landing another International Monetary Fund loan to support its spending. The government is likely to begin implementing reforms to secure billions of dollars in IMF support in the coming months, including currency devaluation, tax reform and subsidized loan reform, even though these all risk upsetting Egyptians reeling from the <a href="/article/egypts-economy-feels-squeeze-prolonged-ukraine-crisis">increased cost of living</a> and are accustomed to government support. These circumstances will translate into increased anti-government sentiment that may prompt <a href="/article/amid-rising-inflation-egypt-mulls-more-subsidy-cuts">Cairo to water down</a> some of the reforms. Similar economic headwinds driven in part by dependence on imported commodities from Russia and Ukraine will continue to hamper the growth of other North African economies, especially Morocco, which faces a significant drought. The mix of high inflation and drought will hurt the economic prospects of the nearly 50% of Moroccans dependent on agriculture and require more government spending on cash transfers to ease the blow. This means Rabat will be heavily focused on economic stabilization in the coming months and the Moroccan government will likely see its popularity decline as Moroccans struggle.&nbsp;<br />&nbsp;</p>

<h3>Baghdad Fails to Form a Government That Can Stabilize Iraq</h3><p>Intractable <a href="/article/rivalries-among-iraqs-shiites-threaten-continued-political-paralysis-and-worse">political discord in Iraq</a> will invite interference from neighboring Iran and will likely yield sporadic violence that risks destabilizing the country&#39;s oil exports. Less than a year after Shiite cleric Muqtada al-Sadr&#39;s followers won the most parliament seats in elections &mdash; and in the immediate wake of the worst inter-Shiite <a href="/article/what-make-bloody-clashes-baghdad">clashes Baghdad</a> has witnessed in several years &mdash; feuding rival Shiite camps will continue to clash politically and occasionally in the street, paralyzing the <a href="/article/iraq-s-parliamentary-vote-reflects-disillusioned-electorate">government formation process</a>. Neighboring Iran, which is influential in Iraq, will push for a political compromise because its own economic, security and political interests in Iraq depend on some degree of stability in Baghdad. But this is unlikely to yield a solution satisfactory to all sides. As a result, the federal government in Baghdad will be unable to address any of Iraq&#39;s deep economic issues. Violence is likely between feuding camps, which will exacerbate security issues in the country and incentivize militias to take up arms, further reducing state power. Continued political violence will threaten the stability of oil exports.</p><h3>Lebanon&#39;s Failure to Launch Reforms</h3><p>Lebanon will fail to meet political and legislative deadlines to secure an IMF bailout, worsening its economic crisis and increasing the <a href="/article/lebanons-voters-signal-desire-change-reform-will-come-slowly">risk of a collapse</a> in security. Even with an IMF bailout as a prospect and an Oct. 31 deadline for electing a president, Lebanese politicians will struggle to get past <a href="/article/can-new-government-halt-lebanon-s-free-fall">their infighting</a>. Fears that compromises could weaken their power will inhibit the passage of legislation weakening banking secrecy, reforming utilities, selecting a new president and establishing the national budget within the quarter. This means IMF aid will not be forthcoming despite the severe economic crisis, and international aid will remain focused only on mitigating the humanitarian crisis. With underlying economic conditions worsening, social unrest will increase, with isolated acts of violence against government and sectarian targets. These acts of violence will combine with a tide of anti-Hezbollah sentiment strengthening among some Christian and <a href="/article/after-bloody-day-beirut-lebanon-braces-more-violence">Sunni factions</a>. This will increase the risk that some protests or attacks might target Hezbollah and trigger retaliation from the powerful militant group, or that Hezbollah might choose to carry out calculated escalations with Israel to distract from domestic problems.&nbsp;</p><h3>Saudi Arabia&#39;s Uphill Battle for Vision 2030</h3><p>Saudi Arabia&#39;s Future Investment Initiative will serve as a public fresh start for Vision 2030, but with investor sentiment dampened by the global economy, the kingdom will rely on more regulatory and social reforms to improve its attractiveness while also increasing repression against dissent. Saudi Arabia&#39;s foreign direct investment remains well below historical highs in the 2000s and early 2010s after years of scandals, COVID-19 lockdowns and slowdowns, and threats of <a href="/article/yemens-path-frozen-conflict">regional conflict</a> with Iran. Some of the factors that spooked investors in the past, however &mdash; like its human rights reputation and the threat of war with Iran &mdash; have <a href="/article/uae-and-saudi-policy-changes-pave-way-us-arms-sales">abated in 2022</a>, allowing the kingdom&#39;s Future Investment Initiative conference in October to try to bring in a fresh round of businesses. But with the global economy slowing, Vision 2030 &mdash; the kingdom&#39;s post-oil economic strategy &mdash; will struggle to convince international investors to return at the scale Riyadh envisions, preventing signs of Riyadh&#39;s desired <a href="/article/uncertain-world-threatens-saudi-arabia-s-tourism-goals">private sector revitalization</a> from emerging within the quarter. To compensate, Saudi Arabia will continue to reform visas, regulations and social mores to attract workers and entice investors. At the same time, it will exploit its pivotal role in global oil markets &mdash; which shields it from sanctions threats by Western countries in the wake of the Russo-Ukrainian war &mdash; to engage in repression at home against activists, dissidents, and journalists without fear of Western government&#39;s reaction, though over time such actions will turn off investors.&nbsp;</p>

<p><strong>Oct. 25-27: </strong>Future Investment Initiative in Riyadh<br /><strong>Oct. 31: </strong>Deadline for&nbsp;Lebanon to elect a new president<br /><strong>Nov. 1: </strong>Israeli legislative elections<br /><strong>Nov. 1-2: </strong>Arab League summit in Algiers<br /><strong>Nov. 20-Dec. 18:</strong> FIFA World Cup in Qatar<br /><strong>Dec. 17: </strong>Tunisian parliamentary elections<br />&nbsp;</p>

Eurasia

<h3>Russia&#39;s Invasion of Ukraine Grinds on Amid Annexations</h3><p>Russian annexations in Ukraine will not stop <a href="/article/increased-pressure-kherson-may-thwart-russias-annexation-plans-now">Kyiv&#39;s ongoing offensive</a> in the Kherson region, while Russia will not seize the remaining territory of the Donbas outside its control, making a cease-fire unlikely during the quarter. Ukrainian forces will <a href="/article/what-ukraines-victory-kharkiv-means-russias-war">continue attacking</a> Russian forces and logistics on the western bank of the Dnieper River in an effort to get them to withdraw across it. While Russia will continue to struggle to supply its forces, it is unlikely to withdraw across the river because this would represent retreating from territory it seeks to annex while depriving Moscow of its bridgehead in that strategic area, severely harming Russian morale. As a result, Russia will be willing to risk immense human and material resources to avoid doing so. Ukraine may continue spoiling attacks on other areas of the battlefront, but will likely <a href="/article/bracing-protracted-war-ukraine-part-1-time-kyivs-side">seek to preserve</a> its resources by concentrating its offensive efforts on the Kherson region. Meanwhile, Russia will focus on seizing the remaining parts of Donbas held by Ukraine. But Russia will likely fail to take the rest of Donbas or other regions of Ukraine because Ukrainian forces are increasingly well-supplied and dug in, and it will take several weeks or months for newly mobilized Russian forces to organize, train, equip and reach the front. These factors, combined with Moscow&#39;s hope that its leverage will increase as Ukraine and <a href="/article/what-russias-indefinite-nord-stream-1-cut-means-europe-s-energy-crisis">European states struggl</a>e with high energy prices before winter, will make a cease-fire unlikely during the quarter.<br />&nbsp;</p>

<h3>Russia Increasingly Feels the Bite of Sanctions and Mobilization</h3><p>The war and its growing economic consequences will not destabilize Russian President Vladimir Putin&#39;s regime or force a significant change in his strategy in Ukraine. Russia&#39;s economic contraction will accelerate as mobilization pulls Russians from their jobs, accelerates the brain drain as young Russians emigrate and strain the country&#39;s budgetary resources, while more industries will cease production amid a lack of critical materials and components; continued high energy prices will provide limited relief. The EU ban on seaborne crude imports, which will enter force Dec. 5, combined with a potential <a href="/article/more-successful-g-7-oil-price-cap-russia-more-risk-it-brings">G-7 price cap</a> on Russian oil and difficulties with supplying its alternative buyers by sea due to a shortage of tankers and the exit of foreign partners from key oil projects, will all combine to produce a greater decline in Russian oil production, possibly to 10 million barrels per day (from 11.3 mb/day in January). This will cause industry layoffs and further squeeze Russia&#39;s dwindling budget revenues, though the exact impact will depend on the evolution of oil prices. Unemployment will rise as other sectors of the economy suspend production due to a lack of imported materials and components from the West. Rising imports from countries such as China, Kazakhstan, Armenia and <a href="/article/drivers-and-potential-threats-deepening-russia-turkey-ties">Turkey</a>, including through gray import schemes, will only partially offset demand, most notably for critical high-tech equipment. These factors plus mobilization and continued Russian casualties in Ukraine will cause domestic support for the war to continue to decrease, but not to the point of significantly impacting Putin&#39;s popularity or prompting the <a href="/article/bracing-protracted-war-ukraine-part-2-time-russias-side">Kremlin to radically alter its pursuit of the war</a> in Ukraine during the quarter.&nbsp;</p><h3>Armenia and Azerbaijan Peace Talks Gain Momentum&nbsp;</h3><p>Armenia and Azerbaijan will make progress toward a settlement to resolve their territorial disputes, but a comprehensive peace deal is unlikely in the quarter and additional clashes are possible. Progress in the negotiations is likely because the remaining stipulations of the 2020 bilateral cease-fire agreement, most notably the <a href="/article/what-watch-armenia-azerbaijan-peace-talks-gain-momentum">departure of Armenian forces</a> from the region, will largely be completed during the quarter, and Armenia&#39;s inability to fully guarantee the protection of the region will incentivize Yerevan to achieve a broader settlement. Yerevan and the ethnic Armenian authorities of Nagorno-Karabakh will also be interested in keeping the negotiations alive because Baku will not hesitate to demonstrate its <a href="/article/nagorno-karabakh-azerbaijans-seizure-russia-protected-territory-bodes-ill-armenia">negotiating leverage</a> with military operations to capture small strategic borderlands of Nagorno-Karabakh. But despite progress, a peace deal is unlikely in the quarter because critical questions regarding the future of Armenians in Nagorno-Karabakh will take significant time to resolve, and local Armenian authorities in the disputed territory (who are not part of the negotiation process) will likely resist a hasty settlement. Azerbaijan will refrain from large-scale military operations that would tarnish its international standing and jeopardize a diplomatic settlement that is likely to be favorable to Baku. Azerbaijan may threaten to not recognize Armenia&#39;s territorial integrity should a deal not be signed in order to maintain negotiating pressure on Yerevan, but Baku will not attempt to seize Nagorno-Karabakh or a land corridor to its Nakhichevan exclave. Opposition to Armenian Prime Minister Nikol Pashinyan may grow, as may protests in Yerevan and in Nagorno-Karabakh that will <a href="/article/armenia-anger-over-nagorno-karabakh-comes-head">become more radical</a> should an unfavorable peace deal appear closer, but these developments will not derail the negotiations or cause Pashinyan&#39;s ouster.&nbsp;</p><h3>Kazakhstan Maintains Cooperative Relations With Russia&nbsp;</h3><p>Kazakh President Kassym-Jomart Tokayev will further cement his grip on the country and preserve close ties with Russia, despite increasing challenges to their relationship after Russia&#39;s invasion of Ukraine. Kazakhstan will hold a snap presidential election Nov. 20 that Tokayev will win handily following promises of continued modest reforms, boosting his popularity as Kazakh citizens and officials rally around him before any viable opponents can emerge. He will also sideline those <a href="/article/mass-protests-kazakhstan-reverberate-across-eurasia">aligned with former President Nursultan Nazarbayev</a> and preserve the country&#39;s &quot;multivector&quot; foreign policy amid tensions with Russia and amid <a href="/article/xis-central-asia-visit-offers-fresh-start-chinese-diplomacy">China&#39;s increasingly large presence</a> in the country&#39;s economy while <a href="/article/response-kazakhstan-s-crisis-sets-stage-future-unrest">preventing social or political upheaval</a> through a modest and tightly controlled liberalization. Despite Moscow&#39;s displeasure over Kazakh pledges to observe &mdash; and selective demonstrative enforcement of &mdash; Western sanctions on Russia to avoid falling under secondary sanctions, Kazakhstan will largely continue to turn a blind eye to export schemes that use its territory to move Western goods to Russia to circumvent sanctions. Moscow will therefore forgo major coercive actions against Kazakhstan, as the country will continue to work closely with Russia in all of their traditional cooperation formats such as the Eurasian Economic Union and the Collective Security Treaty Organization.&nbsp;</p>

<p><strong>Oct. 28: </strong>CIS heads of state summit to be held in Nur Sultan, Kazakhstan<br /><strong>Nov. 4: </strong>Russia marks People&#39;s Unity Day<br /><strong>Nov. 20: </strong>Kazakhstan to hold early presidential elections<br /><strong>November: </strong>Armenia and Azerbaijan presidents to meet in Brussels<br /><strong>November: </strong>Armenia and Azerbaijan border commission to meet in Brussels<br /><strong>December: </strong>Uzbekistan to finalize constitutional changes<br />&nbsp;</p>

Americas

<h3>Brazil&#39;s Heated Presidential Election Concludes</h3><p>A left-wing victory in Brazil&#39;s presidential election in October would result in higher public spending and stronger environmental protections, and a potential deterioration of the business climate. If, as opinion polls suggest, left-wing candidate Luiz Inacio Lula da Silva defeats right-wing incumbent Jair Bolsonaro in the presidential elections in October, the new Brazilian government that takes over Jan. 1 will <a href="/article/spending-and-rate-hikes-risk-bogging-down-brazil-s-economy">hike social spending</a> by increasing direct cash handouts to the less well-off and special interest groups such as teachers and truckers. Over time, this will likely increase already-high inflationary pressures and trigger further central bank tightening, leading to slower economic growth. A da Silva presidency would also likely increase environmental protections, making it harder for businesses to avoid fines related to environmental protection. This in turn could increase aid for anti-deforestation efforts from the United States and Europe to Brazil. In an alternate scenario, if da Silva receives more votes in the election but Bolsonaro disputes the results and alleges fraud, Brazil will likely see politically motivated street protests over the course of the quarter that could turn violent if protesters from the two political camps clash. This would significantly slow policymaking and trigger a prolonged period of political uncertainty and institutional instability that could extend beyond the quarter.<br />&nbsp;</p>

<h3>Chile Pushes for Another Constitutional Rewrite</h3><p>The Chilean government&#39;s push to draft a new constitution will result in prolonged regulatory and legal uncertainty, which will negatively impact economic activity. In the wake of Chile&#39;s rejection of the 2021-2022 constitutional rewrite, President Gabriel Boric will <a href="/article/chile-rejection-new-constitution-wont-put-issue-rest">proceed with plans</a> to draft a new constitution. This could involve seeking political and social support to elect a constitutional assembly in charge of drafting a new constitution (a process that could take months), or assembling a coalition of legislators or civic leaders to conduct an expedited constitutional drafting process. Regardless of the mechanism the government uses, the uncertainty of a new constitutional rewrite will result in <a href="/article/what-expect-chile-votes-new-constitution">businesses and households delaying</a> large investment decisions, likely negatively impacting economic activity in the near term. As the government will likely need to assemble a political coalition to push through another constitutional rewrite, Boric will likely have to moderate other aspects of his policy platform, including watering down a tax reform that seeks to increase mining taxes.&nbsp;<br />&nbsp;</p>

<h3>Progress on Peace Agreements in Colombia</h3><p>Peace negotiations in Colombia are likely to result in an extended cease-fire and improved security conditions. The Colombian government will promote multilateral cease-fire negotiations with the country&#39;s various armed groups in an attempt to reach a sustainable deal. The country&#39;s largest guerrilla group, the National Liberation Army, has also taken steps &mdash; such as announcing a unilateral cease-fire the day president Gustavo Petro was inaugurated &mdash; indicating it supports peace negotiations. These gestures of goodwill are likely to improve Colombia&#39;s security climate over the quarter, benefitting the country&#39;s agricultural and oil and gas sectors, whose supply chains in rural areas often come under attack from armed groups. While the overall security environment will improve, a formal agreement is unlikely in the quarter, as meetings to set the agenda of negotiations alone will likely prove lengthy. The <a href="/article/hard-realities-await-colombia-s-new-left-wing-president">Petro administration</a> will also make progress on efforts to eliminate tax exemptions for corporations. If the tax reforms are approved, investors are likely to view them negatively.</p><h3>A Decline in the Mexican Manufacturing Sector</h3><p>Weakening economic conditions in the United States will undermine Mexico&#39;s industrial sector, potentially exacerbating labor unrest. <a href="/article/us-strong-dollar-risks-renewing-calls-protectionist-trade-policies">High inflation and stagnating economic growth</a> in the United States, and to a lesser extent in Europe, will decrease consumer interest in Mexican-manufactured goods, worsening the outlook for the country&#39;s exports. In particular, weaker demand in the United States will slow manufacturing activity in Mexico, leading to increased unemployment in sectors such as automobiles and textiles. Additionally, extreme drought conditions in Northern Mexico will prompt President Andres Manuel Lopez Obrador to ration water used for commercial purposes, which is likely to result in some companies (especially in the water-intensive textile sector) shifting supply chains away from the region. The drought is also likely to result in higher grain prices that fuel food inflation. Because of the economic slowdown, Mexico will likely see more strikes, intensifying workers&#39; efforts to weaken the Confederation of Mexican Workers in favor of independent unions that push for higher wages, and increasing pressure on the government to expand unemployment benefits.</p>

<p><strong>Oct. 2: </strong>Brazilian general elections<br /><strong>Oct. 25:</strong> Anniversary of 2019 protests in Chile<br /><strong>Oct. 30:</strong> Second-round presidential election in Brazil if no candidate wins more than 50% of the vote Oct. 2<br /><strong>Nov. 8 : </strong>U.S. legislative elections&nbsp;<br />&nbsp;</p>

South Asia

<h3>Afghanistan&#39;s Challenges Persist</h3><p>While worsening humanitarian conditions and the arrival of winter will spur an increase in some international assistance, the Taliban&#39;s continued hard-line governance and enduring relations with violent extremist groups will likely prevent the arrival of significant amounts of foreign assistance. The Taliban have continually failed to demonstrate their intent to become more moderate, and hard-liners in the movement will likely retain control for the foreseeable future. Meanwhile, the U.S. strike that <a href="/article/al-qaeda-after-death-ayman-al-zawahiri">killed al Qaeda leader</a> Ayman al-Zawahiri in Kabul has revitalized international concern about the Taliban&#39;s enduring relationship with terrorist groups. Both issues will likely drive further delays to more substantive international assistance to Afghanistan. But Afghanistan&#39;s worsening humanitarian crisis and the imminent arrival of the country&#39;s harsh winter &mdash; which will <a href="/article/reflecting-talibans-first-year-back-power-afghanistan-part-2-challenges-ahead">exacerbate the dire conditions</a> in the country &mdash; will very likely drive some international action and aid to help counter a potential humanitarian catastrophe. Afghanistan&#39;s economy will likely continue to falter amid a lack of international financial assistance, though mining will offer some respite and some developments in trade with neighboring countries remain possible. Security concerns amid the Taliban&#39;s enduring relationship with al Qaeda and persistent Islamic State Khorasan Province attacks that have recently been directed at more heavily guarded targets, including international diplomatic presence will, however, hamper such developments. Finally, further <a href="/article/why-terrorist-groups-afghanistan-could-be-poised-resurgence">foreign counterterrorism operations</a> remain possible in the aftermath of the al-Zawahiri strike and seemingly worsening chances for a cease-fire deal between Tehrik-i-Taliban Pakistan and the Pakistani government.<br />&nbsp;</p>

<h3>The Indian Economy Remains Resilient&nbsp;</h3><p>Domestic demand will keep the Indian economy afloat while the government takes steps to ensure food security and tackle inflation. Strong domestic consumption after the reopening of the economy following the peak of the pandemic will continue to drive modest growth in the Indian economy even as global headwinds sustain inflation at higher levels. High foreign exchange reserves of $564 billion give the central bank enough room to intervene to prop up the rupee against declines versus the dollar. While the central bank will continue to raise interest rates to deal with inflation, the hikes will be modest going forward. The evolution of global fuel prices and <a href="/article/more-successful-g-7-oil-price-cap-russia-more-risk-it-brings">potential disruptions</a> in the import of cheap Russian oil will determine the trajectory of manufacturing and inflation in India. In the meantime, the uneven rainfall during the monsoon season (July-September) will likely result in lower rice crop yields in the fourth quarter, which will likely prompt export restrictions. While these restrictions will have a minimal impact domestically, they can drive global rice prices upward and increase the risk of food insecurity in smaller Asian and sub-Saharan African countries that depend on rice imports. Separately, while the Indian government enjoys popular support, there could be social unrest in the likely case that New Delhi decides to push through with controversial reforms in the electricity distribution sector and in labor laws.</p><h3>No Respite for Pakistan As Floods Exacerbate Socio-Political Problems</h3><p>While Pakistan will continue to receive International Monetary Fund support, the risk of social unrest will remain high because of political polarization and lingering economic woes. Pakistan received a $1.17 billion tranche from the IMF on Aug. 30 after implementing austerity measures including tax hikes and a commitment to periodic increases in electricity and fuel prices and also secured financial assistance from friendly nations. While this has allowed Pakistan to avoid a sovereign debt default, the economic situation will likely further deteriorate because of the long-lasting impact of the <a href="/article/pakistans-floods-economic-political-and-security-fallout">devastating floods</a> that the country experienced in recent months. Economic losses will be particularly deep in the agricultural sector, which will worsen food insecurity in Pakistan while also pushing the already high inflation (27.3% in August 2022, the highest in 47 years) upward. Against this backdrop, Islamabad will try to convince the IMF to soften the pace of the introduction of austerity measures to allow the government to cope with the humanitarian disaster. Concurrently, the political volatility arising from <a href="/article/pakistans-ousted-prime-minister-making-comeback">former Prime Minister</a> Imran Khan&#39;s confrontation with the judiciary, the military and the government risks a return to widespread social unrest across Pakistan that could intensify as economic grievances grow in the coming months. While the Pakistani government most likely will make it through the quarter because of external financial assistance, the lingering economic issues and the growing political polarization may force it to call elections ahead of the current October 2023 deadline.&nbsp;</p>

<h3>Sri Lanka Hopes to Get an IMF Deal</h3><p>The Sri Lankan government will implement economic reforms aimed at fiscal consolidation, but political stability will depend on its management of shortages of essential items as well as on the ousted president&#39;s political moves. The Sri Lankan government of President Ranil Wickremesinghe inked a provisional <a href="/article/sri-lanka-s-economic-struggles-will-deepen-its-reliance-foreign-funds">deal with the IMF</a> for a $2.6 billion bailout package Sept. 1. As a part of the deal, during the fourth quarter, the government will push for debt-restructuring negotiations with major creditors like China, Japan and India as well as sovereign bondholders. It will also implement measures that could include reforming the tax system, increasing the independence of the central bank and devaluing the currency to boost exports. While the domestic situation will be less volatile than in the third quarter, the prolonged economic malaise will cause sporadic protests in Colombo and other parts of the country. In the meantime, the government will use its support from Sri Lanka&#39;s largest party, the Sri Lanka Podujana Perumana, to curtail presidential powers as a gesture to appease anti-establishment sentiments in the population. Should the ousted former President Gotabaya Rajapksa (who returned to Sri Lanka on Sept. 2) try to return to politics, however, it could spark new waves of widespread social unrest, especially if the government backs him in exchange for political support.&nbsp;</p>

<p><strong>Oct. 18-21: </strong>India and U.S. to hold joint military exercise in Indian northern state of Uttarakhand close to the disputed India-China border<br /><strong>Nov. 20: </strong>Nepal general elections<br /><strong>Nov. 29:</strong> Pakistan&#39;s current army chief term ends<br /><strong>December 2022:</strong> State assembly elections in the Indian states of Gujarat and Himachal Pradesh<br />&nbsp;</p>

Sub-Saharan Africa

<h3>Ethiopia&#39;s Civil War Will Likely Continue</h3><p>Clashes in northern Ethiopia will likely continue, worsening the humanitarian crisis in the country and continuing to stall debt negotiations. Despite the Sept. 11 call by the Tigray People&#39;s Liberation Force (TPLF) to renew a cease-fire with the Ethiopian National Defense Forces, the ENDF has continued to carry out <a href="https://threatlens.stratfor.com/content/ethiopia-military-hits-tigray-second-round-airstrikes" data-content-type="lens_incident_report">airstrikes</a> on Mekelle, the Tigrayan regional capital, amid <a href="/article/whats-next-ethiopias-civil-war-amid-renewed-fighting-tigray">continuing violent flare-ups</a> in Tigray and its border areas. While the war eventually will end in a political agreement, a negotiated settlement is improbable during the quarter because of the Ethiopian government&#39;s disinterest in the recent cease-fire offer; mutual distrust; the involvement of additional actors like Eritrea, the Oromo Liberation Front and Amhara militias that will each seek to sustain fighting to achieve their own ends; and the TPLF and ENDF&#39;s relatively evenly matched military capabilities. This also means that an end to the conflict due to one side vanquishing the other is unlikely. If the TPLF and ENDF agree to another cease-fire (the first step toward a negotiated settlement to end the conflict), it will remain under constant threat of collapse as clashes among the TPLF, Amhara militias and Eritrea and between the Oromo Liberation Front and the ENDF will likely persist given that these groups&#39; disparate aims will remain unaddressed. Continued fighting &mdash; whether isolated to Tigray or extended to neighboring Afar and/or Amhara regions &mdash; will worsen the humanitarian crisis in northern Ethiopia, prolong <a href="/article/what-zambian-debt-talks-could-mean-chinese-borrowers-africa">stalled debt talks</a> and inhibit private investment. This means that Ethiopia&#39;s economic woes, including drained currency reserves, poor debt sustainability and extreme poverty rates, are unlikely to improve by year&#39;s end.&nbsp;<br />&nbsp;</p>

<h3>Political Disunity Hampers South Africa&#39;s Crisis Management&nbsp;</h3><p>Internal divisions within South Africa&#39;s governing party will weaken President Cyril Ramaphosa and hamper the government&#39;s ability to pass much-needed reform to address a worsening economic and social situation. Ramaphosa will seek reelection as the head of the governing African National Congress at the party&#39;s December conference as <a href="/article/anc-s-record-electoral-defeat-bodes-ill-south-africa-s-economic-stability">national support for the party</a> stands at an all-time low. Ramaphosa&#39;s opponents from a rival faction of the ANC called Radical Economic Transformation and from outside the party will attempt to capitalize on the conference, low approval ratings and <a href="/article/burglary-scandal-puts-south-africa-s-anti-corruption-president-hot-seat">recent allegations of corruption</a> against the president to weaken Ramaphosa and oust him as party leader. But Ramaphosa&#39;s supporters outnumber his rivals, which means that he will still likely win the party&#39;s top seat. The political infighting and disunity, however, will hamper the government&#39;s ability to address many of South Africa&#39;s long-standing problems that have worsened in the wake of the COVID-19 pandemic and Russia&#39;s invasion of Ukraine, like rolling blackouts, <a href="/article/south-africas-powerful-labor-unions-dig-tough-wage-negotiations">labor strikes</a>, xenophobic attacks against foreigners, unemployment and poverty, and growing public discontent with high food and fuel prices. Opposition and special interest groups like the Economic Freedom Fighters, the Democratic Alliance, Operation Dudula and others are likely to stage potentially violent demonstrations, as are trade and public workers&#39; unions. As a result of all these factors, the government is unlikely to pass badly needed structural economic reforms, attract greater foreign investment or markedly improve its economic outlook in the next quarter.&nbsp;</p><h3>Western Monetary Tightening, Energy Crisis to Pinch African Economies&nbsp;</h3><p>Increasing interest rates in the West and the energy crisis in Europe will negatively impact African debtholders and fuel importers, exacerbating economic crises and risking political instability. As the United States and Europe tighten their monetary policies to bring down inflation, African countries holding dollar- and euro-denominated debt &mdash; such as Ghana, Kenya and South Africa &mdash; will face rising global interest rates which will worsen inflation, depreciate local currencies and stifle growth. Governments across the continent will struggle to finance social spending programs and debt-servicing costs, likely increasing the risk of default in high-risk contexts like Ethiopia, Ghana, Kenya and Mozambique. On top of this, high demand for energy through Europe&#39;s winter will increase price pressure on African refined fuel importers (most notably <a href="/article/nigeria-gas-shortages-add-fuel-fire">Nigeria</a>, which imports more than 90% of its refined fuel products). Although many of sub-Saharan Africa&#39;s largest economies subsidize fuel prices to help consumers, this is unlikely to sufficiently insulate consumers from shortages or having to spend a greater percentage of income on fuel and transportation. Resulting social unrest and union action could paralyze transportation sectors and business activities in commercial hubs like Abuja, Accra, <a href="/article/senegal-protests-turn-violent-ahead-elections">Dakar</a>, Dar es Salaam, Johannesburg, Nairobi and Lagos, among others. Such demonstrations carry a risk of snowballing into broader movements against perceived government mismanagement.</p><h3>Kenya&#39;s Pending Economic Crisis Will challenge the New President&nbsp;</h3><p>The new Kenyan government&#39;s expansionary economic policies will increase the possibility of a debt crisis in the mid to long term. Following President William <a href="/article/amid-fraud-allegations-kenyas-presidential-election-risks-ending-violence">Ruto&#39;s contentious election</a>, he will seek to establish a parliamentary majority to achieve his first-term agenda. Defections from rival parties and the appointment of Ruto allies in top legislative positions mean that Ruto will probably be able to pursue his &quot;bottom up&quot; economic plan, which includes investing $2.4 billion in farming, raising tax collection, and increasing social spending on small- and medium-sized businesses. These measures could require Ruto to review and amend the 2022-23 national budget, which the legislature approved in April. With Ruto likely to pass such reforms, Kenya will be likely to inch closer to a financial crisis through the fourth quarter unless it attempts to renegotiate loan contracts, particularly as investors become increasingly wary of the Kenyan shilling skimming record lows, inflation reaching its highest rate in five years, and <a href="/article/kenyas-next-president-will-inherit-unsustainable-debt-burden">debt ballooning</a> to nearly 70% of gross domestic product. While Kenya is unlikely to default on its debt this quarter because the country&#39;s next major debt maturity deadline is not until 2024, Ruto&#39;s expansionary social policies could make default more likely in the medium term.&nbsp;<br />&nbsp;</p>

<p><strong>October:</strong> IMF target date for Kenya to remove fuel subsidies&nbsp;<br /><strong>Oct. 10-16:</strong> IMF Annual Meetings in Washington, during which the board of directors will likely discuss Ethiopia&#39;s debt situation&nbsp;<br /><strong>Oct. 17:</strong> Corruption trial of former South African President Jacob Zuma to resume&nbsp;<br /><strong>Nov. 20-25:</strong> African Union Summit on Industrialization and Economic Diversification&nbsp;<br /><strong>Dec. 13:</strong> U.S.-Africa Leaders&#39; summit to discuss implementation and Ethiopia&#39;s potential reentry to the African Growth and Opportunity Act<br /><strong>Dec. 16-20:</strong> ANC elective conference in South Africa&nbsp;<br />&nbsp;</p>

2022 FOURTH-QUARTER FORECAST

Europe

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