Europe

Geopolitical tensions will remain high as the war in Ukraine continues and meager economic activity continues to raise questions about the future of the global economy.


Quarterly

Global Trends

While Chinese economic activity will pick up, continued monetary tightening by the Federal Reserve and the European Central Bank will lead to slowing economic growth in the United States and Europe, increasing the probability of a hard landing later in the year. Although <a href="/article/global-economic-fallout-us-and-europes-inflation-woes">headline inflation</a> has probably peaked in the United States and the euro area, core inflation will decline only gradually. <a href="/article/implications-eurozones-exceptionally-tight-labor-market">Strong labor markets</a> will keep upward pressure on wage and core inflation. At the same time, both the Federal Reserve and the European Central Bank will be reluctant to hike interest rates too aggressively for fear of exacerbating financial stability risks. But even if the two central banks tighten monetary policy only moderately, the risk of further economic slowdown &mdash; and even a recession &mdash; in the United States and Europe, as opposed to a softer landing, will increase during the next few quarters. Higher policy rates combined with quantitative tightening will raise borrowing costs even higher and might expose hidden leverage in the financial sector. In the wake of the Silicon Valley Bank crisis, U.S. authorities will continue to intervene forcefully (and successfully as far as systemic risk is concerned) to prevent broader economic and financial instability.

U.S. and European Economic Activity Decelerates

Against the backdrop of a further tightening of global financial conditions and a weakening economic outlook for advanced economies, highly indebted countries such as Egypt and Pakistan will face particularly significant financial risks, while middle-income countries will probably be able to endure the upcoming shocks. Higher global interest rates and a stronger dollar will put pressure on developing countries&#39; finances. Slower growth in advanced economies will add a further drag on the economic outlook in many <a href="/article/global-markets-are-showing-signs-stress-amid-tightening-financial-conditions">financially struggling developing countries</a>. Virtually all sub-Saharan countries will face the greatest challenges, though Pakistan and Egypt will also be at increased risk of a financial crisis and sovereign default because of persistent balance of payments pressures and, in the case of Pakistan, a limited willingness to adjust macroeconomic policies. Even if defaults are avoided, both countries will see significant economic dislocation in terms of inflation and economic growth, raising the risk of social and political turmoil. <a href="/article/financial-crisis-india-remains-unlikely-following-adani-scandal">Middle-income countries</a> will experience some challenges, but their economic and financial situation will remain manageable because they have lower debt and more flexible exchange rate regimes, allowing them to cope with external shocks more readily. Many Asian countries will benefit from faster <a href="/situation-report/china-local-government-debt-loom-large-2023-risking-more-unrest">Chinese economic growth</a>. Sovereign debt restructurings in countries that already have defaulted will lag because of disagreements between creditors over fair restructuring terms. Sovereign restructurings in Ghana and Zambia, where China is a major creditor, may, however, make some progress now that China has endorsed restructuring in Sri Lanka, where it is also a major creditor.&nbsp;

Financial Instability Risks in Some Highly-indebted Developing Economies Increases

Growing Western military support for Ukraine &mdash; and Ukraine&#39;s military successes &mdash; increases the probability that <a href="/article/cost-benefit-analysis-china-providing-military-aid-russia-part-1">China will eventually send</a> lethal aid to Russia, though this may not occur in the second quarter. NATO countries will continue expanding military aid to Ukraine to enable the Ukrainian military to better withstand <a href="/article/what-watch-russia-launches-its-next-major-offensive-ukraine">future Russian offensives</a> and continue its own offensives. Although an agreement to send Western fighter jets to Ukraine may not materialize during the quarter, <a href="/article/ukraine-deal-supply-western-tanks-could-unlock-more-advanced-weapons">the delivery of tanks</a>, ammunition, armor and other materials with a more significant short-term impact on the conflict will continue to expand. This growing military support will further expose Russia&#39;s increasingly stretched supplies of artillery ammunition, drones, missiles and other equipment. Fearful that this situation could result in <a href="/article/ukraine-wars-impact-russia-one-year">Russia considering a broader escalation</a> that could eventually involve the use of nuclear weapons, China will consider providing military support to shore up Russia&#39;s stretched production capacity. Beijing will, however, be very cautious about the timing of such a decision, which will depend on the evolution of the war and may not materialize during the quarter. Should China send aid, the West&#39;s initial sanctions will probably focus on Chinese companies and political figures involved in the sales, but Washington will threaten broader sanctions against China in an effort to deter Beijing from expanding military transfers to Russia. While in this scenario the European Union is likely to adopt sanctions of its own, Europe will continue to seek a diplomatic solution to the war.&nbsp; &nbsp;

Western Support for Ukraine Drives China to Consider Sending Lethal Aid to Russia

The United States will continue to impose restrictions on China&#39;s technology sector and will slowly convince some of its allies to do the same, but it will still need to rely on unilateral restrictions if it is to cut off China&#39;s access to U.S. technology and key sectors. The Biden administration is likely to announce a new executive order increasing scrutiny on investment in China&#39;s technology sector, but the order is likely to be designed to increase transparency and only give the United States limited authority to block investments, perhaps just in the advanced semiconductor sector. While the executive order will set up a narrow outbound investment screening mechanism, the U.S. government will also take internal steps on developing a broader one for future use. Japan and the Netherlands will likely <a href="/article/us-japan-and-netherlands-mull-new-restrictions-chinas-tech-sector">formally announce some restrictions</a> on exports of <a href="/article/us-deals-chinas-semiconductor-sector-its-biggest-blow-yet">immersion lithography machines</a> and likely other semiconductor manufacturing equipment as a part of their January deal with the United States to place restrictions on chipmaking gear that could produce 14 nm or more advanced chips. Broader European export controls on China&#39;s technology sector are unlikely, but if China increases military support to Russia, it will draw EU sanctions targeting China&#39;s defense industry &mdash; reinforcing U.S. efforts to cut off technology exports to China. &nbsp;

The U.S. Looks to Restrict Investment into China's Chip Sector While the Netherlands, Japan Join U.S. Export Restrictions

Eurasia

Kyiv&#39;s offensive in southern Ukraine focusing on the Crimea land corridor is unlikely to alter the strategic course of the war. Kyiv will significantly step up offensive operations in the second quarter and attempt to gain ground toward the Crimea land corridor out of concern that it risks being trapped in a long-term war of attrition. It fears becoming dependent on Western support that cannot be taken for granted given domestic political strains in the West, and knows that freezing the conflict near the current battle lines would mean de facto accepting a substantial loss of territory. The most important factor in the evolution of these efforts will be the quantity, quality and timing of <a href="/article/ukraine-deal-supply-western-tanks-could-unlock-more-advanced-weapons">Western arms deliveries to Ukraine</a>, most importantly of artillery ammunition, precision munitions and modern armored vehicles. Ukraine will receive growing numbers of modern Western tanks, but is <a href="/article/what-make-zelenskys-visit-washington">unlikely to receive advanced Western aircraft</a> or significant quantities of munitions that increase its strike range. Despite this continued Western support, the much <a href="/article/what-watch-russia-launches-its-next-major-offensive-ukraine">greater density of forces</a> on the front line compared to previous stages of the war will make it very hard for Ukraine to gain significant territory, let alone achieve a breakthrough capable of decisively altering the strategic trajectory of the war in Kyiv&#39;s favor, which would require forcing Russian troops out of the Crimea land corridor entirely. Russia and Belarus may conduct diversionary provocations along Ukraine&#39;s northern borders, but a renewed ground attack from Belarus will not occur. The increased intensity of the fighting will preclude any resumption of cease-fire talks.&nbsp; &nbsp;

Kyiv Steps Up Offensive Actions in Southern Ukraine 

While Russia will probably not announce another round of mobilization during the quarter, an insufficient number of volunteers and continued Western deliveries of weapons to Ukraine could change Moscow&#39;s calculation later this year. Confident that its current forces can hold the line in southeastern Ukraine, the Kremlin will likely forgo <a href="/article/partial-military-mobilization-and-annexations-ukraine-putin-again-ups-stakes-his-war">further formal mobilization measures</a> during the quarter similar to the initial wave of 320,000 it claimed to induct in late 2022. Conscious of that measure&#39;s unpopularity and wanting to <a href="/article/russias-mobilization-will-haunt-its-demographic-and-economic-outlook">avoid unnecessary destabilization</a> of its economy, the Kremlin will instead order Russia&#39;s regions to sign up volunteers and conscripts for contract service, using recruits from outside Russia to plug remaining manpower shortages. Because this renewed drive to recruit volunteers is unlikely to yield sufficient manpower, however, the Kremlin could use Ukraine&#39;s offensive as justification for further formal mobilization measures toward the end of the quarter. Even if Moscow rejects further mobilization during the quarter, such measures will only become more likely later in the year, as Moscow eventually seeks to increase its offensive actions and capture more Ukrainian territory. One of the greatest barriers to further mobilization is a lack of modern equipment, and Moscow will increasingly strive to <a href="/article/cost-benefit-analysis-china-providing-military-aid-russia-part-1">receive Chinese equipment</a>, initially covertly, to enable further mobilization and offensive operations. Moscow&#39;s need is more acute given its domestic production bottlenecks on key systems including drones, precision munitions and armored vehicles. Russia&#39;s strong propaganda machine, crackdown on opposition and relatively stable economy means that major <a href="/article/russia-what-would-need-happen-seriously-threaten-putin-s-power">domestic political instability is improbable</a>&nbsp;during the quarter.&nbsp;

Russia Considers Military Mobilization Measures

Negotiations on border demarcation and a peace deal between Armenia and Azerbaijan will continue, but a breakthrough is unlikely due to disagreements on Nagorno-Karabakh. This will prompt Azerbaijan to maintain tensions, but a major escalation is unlikely. Azerbaijan&#39;s February offer to allow checkpoints on the proposed Zangezur transit corridor through Armenia that would connect Azerbaijan with its Naxcivan exclave represents a <a href="/article/what-make-growing-iran-azerbaijan-tensions">softening of Baku&#39;s stance</a> that will allow negotiations with Yerevan to shift primarily to the status of Nagorno-Karabakh and rights of Nagorno-Karabakh Armenians within Azerbaijan. But further progress in these negotiations is unlikely because ethnic Armenians in Nagorno-Karabakh will continue to resist integration with Azerbaijan. Separately, Yerevan will reject changes to the terms of the Lachin corridor (which connects Armenia and Nagorno-Karabakh) unless they come as part of the implementation of a comprehensive peace deal, and Baku is likely to continue its blockade of the Lachin corridor road to maintain leverage. The presence of the EU monitoring mission in Armenia and Turkey&#39;s domestic priorities because of the February earthquake and the May general elections will dissuade Baku from conducting any <a href="/article/azerbaijan-risks-spoiling-budding-armenia-turkey-normalization">large-scale military operations</a> in the region, which would turn the international community against Baku and <a href="/article/what-watch-armenia-azerbaijan-peace-talks-gain-momentum">jeopardize an eventual peace deal</a> in its favor. Small-scale provocations and violent flare-ups either on their common border or in Nagorno-Karabakh will remain a possibility, however, which could further slow peace talks.&nbsp;

Armenia-Azerbaijan Negotiations Shift to Nagorno-Karabakh but a Breakthrough Unlikely 

Kazakhstan will shift from political to economic reforms and will prioritize modernizing energy systems, including through deeper cooperation with Russia. Having completed a yearlong series of political reforms involving a <a href="/situation-report/kazakhstan-constitutional-amendments-approved-referendum">referendum on constitutional changes</a>, as well as <a href="/situation-report/kazakhstan-tokayev-announces-early-presidential-election-clemency-reforms">presidential</a> and <a href="/situation-report/kazakhstan-president-dissolves-parliament-ahead-early-election">parliamentary elections</a>, Kazakh President Kassym-Jomart Tokayev will pivot from political to economic reforms. Using the ruling Amanat party&#39;s victory in the March 19 legislative election as a mandate, Tokayev will likely unveil initiatives to increase economic growth by limiting the role of the state in the country&#39;s economy and streamlining the country&#39;s bureaucracy to reduce obstructions to business. Astana will also pursue changes to the country&#39;s energy and transit systems, most significantly by reducing <a href="/article/risks-kazakhstans-slow-drift-russia">the country&#39;s reliance on Russia</a> for the exports of its crude oil (through which 94% of Kazakh oil is currently exported) by increasing shipments across the Caspian Sea by tanker to the Baku-Tbilisi-Ceyhan pipeline to Turkey. Despite these diversification efforts, Kazakhstan will continue negotiations with Russia and Uzbekistan on the creation of a so-called <a href="/situation-report/uzbekistan-russia-tashkent-skeptical-russias-tripartite-gas-union-proposal">tripartite gas union</a> to coordinate natural gas supplies between the three and to other countries. A comprehensive agreement enshrining the enhanced cooperation is unlikely in the quarter, as Astana and Tashkent will remain reluctant to increase their dependence on Moscow unless they are convinced the terms are favorable and that a deal is beneficial to ensuring internal price stability this coming winter. &nbsp;

Kazakhstan Continues Economic and Energy Reforms

Economic activity will remain subdued throughout Europe because of monetary tightening, a strong labor market and pervasive inflation, but this will not reduce the Continent&#39;s political and economic support for Ukraine. Economic growth in the European Union and the United Kingdom will remain low and in some cases turn negative during the quarter. While inflation has probably peaked, it will remain high and will continue to negatively impact <a href="/article/europes-inflation-crisis-raises-risk-social-and-labor-unrest">households&#39; purchasing power</a> and companies&#39; business decisions. Additionally, unemployment will remain low. These factors mean that the European Central Bank and the Bank of England will <a href="/article/global-economic-fallout-us-and-europes-inflation-woes">continue tightening their monetary policy</a> to fight inflation (even if the pace of interest rate hikes could slow), further undermining economic growth. Factors including falling energy prices, easing global supply chain bottlenecks and the reopening of China&#39;s economy mean, however, that while technical recessions are possible, deep recessions are unlikely. Europe&#39;s sluggish, but not critically weak, economy means that political, economic and military support for Ukraine will continue and sanctions on Russia will remain in place, and may be expanded. The risk of a decline in public support for Kyiv, especially in Western Europe, will continue, but will not translate into policy changes or falling support at the government level during the quarter because of the ongoing political momentum for aiding Ukraine.&nbsp;

A Quarter of Low Growth in Europe

Negotiations over structural EU reforms will intensify, though political divisions between member states will delay agreements, especially on sensitive issues like debt reduction and energy market reforms. The negotiations to <a href="/article/eu-fiscal-deficit-and-sovereign-debt-reform-reignites-north-south-divides">reform EU fiscal rules</a> will expose divisions between Southern European member states, which will push for more flexible sovereign debt and fiscal deficit rules, and Northern European states, which will push for strict enforcement of the reformed rules. While a compromise is likely later this year, the talks are likely to extend beyond the quarter because of these political divisions. Similarly, a European Commission proposal to <a href="/article/look-eus-proposed-electricity-market-reform">reform the bloc&#39;s electricity market</a> will divide countries that campaign to decouple electricity and volatile natural gas prices and countries wary of any structural reforms that could disrupt markets. Because the recent fall in energy prices has decreased the urgency for reform, a deal is unlikely during the quarter, which means that the bloc will remain exposed to eventual jumps in natural gas prices later in the year that increase electricity prices. Progress is likely on less controversial issues such as the <a href="/situation-report/us-eu-critical-raw-materials-deal-could-boost-european-automakers-operations-us">adoption of a Critical Raw Material Act</a> and the noncontroversial parts of an EU Green Deal Industrial Plan (such as simplifying regulatory requirements and easing access to funding). Finally, the European Union will make overtures to China in an attempt to preserve a position vis-a-vis Beijing independent from that of the United States, which will include visits to China from high-ranking EU officials and country leaders. While Brussels will be interested in the opportunities created by China&#39;s slow economic recovery, it will remain critical of China&#39;s support for Russia&#39;s war efforts in Ukraine. A significant Chinese intervention in support of Russia would increase the possibility of EU economic and political sanctions against China, though a military reaction is unlikely.&nbsp; &nbsp;

Structural Reforms Highlight EU Divides

In France, the government&#39;s decision to pass its pensions reform without a vote in the National Assembly will limit Paris&#39; room for implementing future reforms and will keep a significant risk of protests. In Spain, a strong performance by the right-wing opposition in regional elections could increase political volatility and open the door to significant political change later in the year. The French government&#39;s decision to approve its controversial <a href="/article/macron-forces-through-his-pension-reform-what-cost">pensions reform without a vote</a> in the National Assembly means that trade unions will continue with their <a href="/article/france-uproar-over-macrons-pension-reform-portends-more-strikes-and-political-uncertainty">heavily disruptive strikes</a>, while far-left and far-right parties will hold protests against the government. President Emmanuel Macron will struggle to pass any meaningful reforms because of insufficient parliamentary support. He may appoint a new prime minister to regain the political initiative, and may also move his policy agenda further to the right (including pushing for tax cuts and taking a tougher position on issues like security and immigration) in search of more durable support from the conservative opposition. But this could prove complicated, especially as the opposition will be skeptical of supporting a weakened president. Spain meanwhile will hold regional elections in 12 of its 17 autonomous communities in May. Prime Minister Pedro Sanchez&#39;s Socialist Party governs in most of the autonomous regions that will hold elections, but his party is likely to lose power in some of them to rising conservative and far-right opposition forces. A strong performance by the opposition would likely <a href="/article/fractures-spains-government-give-right-wing-parties-edge-ahead-elections">deepen the divisions</a> within Spain&#39;s coalition government and slow policymaking. It will also open the door to similar results in the Spanish general election in December, potentially leading to a far-right party <a href="/article/how-geopolitics-bringing-nationalism-back-spain">entering a Spanish government</a> for the first time in the country&#39;s modern democratic history.

A Tense Political Environment in France and Spain

The British government will continue efforts to consolidate public finances and improve cooperation with the European Union despite internal opposition in the ruling Conservative Party that complicates policymaking. Prime Minister Rishi Sunak&#39;s <a href="/article/eu-and-uk-reach-deal-northern-ireland-whats-next">deal with the European Union</a> over Northern Ireland will continue to create turmoil within the governing Conservative Party. Intraparty criticism of Sunak will be particularly loud if his party performs poorly in local elections in May. While this political climate could complicate policymaking and generate policy uncertainty, it will probably not result in the collapse of Sunak&#39;s government because the number of Conservative rebels is unlikely to reach a critical mass during the quarter. But pressure from hard-line Brexiteers means that Sunak will only make modest progress in his ongoing rapprochement with the European Union, with limited deals on issues such as scientific research and energy possible. London will also accelerate efforts to sign new trade agreements, pushing for membership in the Trans-Pacific Partnership, infusing momentum in talks for a deal with India, and advancing the ratification process for free trade agreements with Australia and New Zealand. The government will also increase efforts to boost domestic industrial competitiveness, opening the consultation process on measures to reduce energy costs in energy-intensive sectors including steel, automotive and chemicals. After the British government announced its budget for 2023 in mid-March, it will not introduce additional significant tax cuts during the quarter because of its <a href="/article/implications-weakening-uk-pound">limited fiscal space</a> despite pressure from Conservative lawmakers to reduce <a href="/article/uk-prime-minister-liz-truss-steps-down-what-now">the country&#39;s tax burden</a> ahead of the 2024 general election. Finally, workers in both the public and private sectors will continue to demand higher wages to keep up with inflation, meaning additional protests and strikes are probable during the quarter.

A Timid EU-U.K. Rapprochement

Asia-Pacific

Beijing will provide modest policy support to its slowly growing economy, which will partially bolster growth in East and Southeast Asia, but potential Western sanctions could hinder China&#39;s recovery. As the Chinese economy slowly recovers, Beijing will remain focused on fiscal support for businesses, preventing the unemployment rate from growing and spurring a consumption recovery <a href="/article/chinas-inflexible-financial-system-amid-declining-population">without exacerbating debt issues</a>. Still, China&#39;s real estate downturn will weigh on consumer sentiment, and <a href="/article/global-economic-fallout-us-and-europes-inflation-woes">wilting demand in Europe and the United States</a> will drag on China&#39;s manufacturing growth, even if the domestic recovery somewhat makes up for this downturn in export orders. The government has <a href="/article/what-chinas-zero-covid-u-turn-means-xis-future">refused to resume &quot;zero-COVID&quot; restrictions</a> even in the face of record-high infections in early 2023, suggesting the risk of renewed <a href="/article/protests-unlikely-budge-beijing-zero-covid">nationwide anti-lockdown protests</a> remains low. But the threat of localized unrest remains elevated over issues of unemployment as well as real estate, banking, health insurance and pension problems. If local governments cut jobs and social spending to make up for <a href="/article/china-mulls-shift-strategy-real-estate">the lack of real land revenues</a> and counter years of excess COVID-19 expenditures, it could trigger unrest; if they do not, it could spur local government debt defaults. China&#39;s economic recovery will somewhat buoy growth in East and Southeast Asia by counteracting the downturn in Western demand, but the difference between Chinese and Western demand profiles for Asian goods will limit this effect. Likewise, the resumption of Chinese outbound tourism will assist with Southeast Asia&#39;s economic recovery. Should <a href="/article/cost-benefit-analysis-china-providing-military-aid-russia-part-2">China provide lethal weapons</a> to Russia for its war in Ukraine, this could bring Western economic and political sanctions on China. This scenario would <a href="/article/cost-benefit-analysis-china-providing-military-aid-russia-part-1">trigger a de facto freeze</a> on the expansion of trade and investment ties between China and Europe and the United States as the reputational and sanctions compliance risks of working with China mount. These restrictions would significantly hamper China&#39;s post-COVID economic recovery. &nbsp;

Despite Headwinds, China's Recovery Buoys Regional Growth

Hong Kong is unlikely to expand the National Security Law in 2023, but stricter implementation and enforcement of the existing law will raise compliance and reputational risks for foreign businesses. In 2023, Hong Kong authorities are unlikely to <a href="/article/plan-expand-hong-kong-s-national-security-law-accelerates-china-s-takeover">expand the National Security Law</a>, which Beijing imposed on the territory in June 2020, after the topic was absent from the 2023 legislative agenda and <a href="/article/under-john-lee-hong-kongs-democratic-backsliding-will-accelerate">Chief Executive John Lee claimed in January</a> that it may not expand until 2024. This change in timing is driven by the government&#39;s desire to spur economic recovery and to avoid bolstering the pro-sovereignty Democratic Progressive Party&#39;s chances in <a href="/article/updating-our-assessment-evolving-taiwan-china-relationship-politics">Taiwan&#39;s upcoming January 2024 elections</a>. Even if the National Security Law is not expanded in 2023, Hong Kong&#39;s authorities will deepen the implementation and enforcement of National Security Law-related policies during the second quarter, as evidenced by the recent appearance of clauses in Hong Kong real estate leases that would allow the government to cancel contracts if they detect national security threats and the National Security Committee&#39;s request in January that the legislature bar foreign lawyers from representing defendants in cases associated with NSL violations. These implementation measures will raise compliance and reputational risks for businesses operating in Hong Kong, while the continual politicization of the judiciary will erode the rule of law. Now that COVID-19 restrictions are gone, small-scale civil demonstrations may resume in the territory as dissatisfaction with the government remains high, but heavy-handed security will constrain the ability of such demonstrations to grow in scale and duration to anything resembling the <a href="/article/2019-year-protests-roiled-hong-kong">2019-2020 pro-democracy protests</a>.

Hong Kong Uses the National Security Law More Aggressively

Thailand&#39;s May general election portends likely political chaos and social unrest as electoral institutions enable meddling on behalf of military-backed interests. Thai Prime Minister Prayuth Chan-ocha&#39;s decision in February to dissolve the House of Representatives and hold an early general election, likely on May 7, means that the country will experience heightened political turbulence during the quarter. The electoral system is weighted heavily in favor of military-backed parties, meaning there is a high risk of electoral interference. This, in turn, is likely to drive large-scale social unrest if authorities are widely perceived as undermining the democratic process. Thailand&#39;s 2017 Constitution grants the military-appointed Senate outsize power to determine the prime minister, which, if in conflict with the House&#39;s selection determined by voting, could lead to a hung parliament and political deadlock. In that scenario, economic issues such as a high cost of living, household debt and stagnant wages would be unlikely to improve, dampening <a href="/article/prolonged-absence-chinese-visitors-will-plague-southeast-asias-economic-recovery">Thailand&#39;s post-COVID recovery</a>, already the weakest in Southeast Asia. From a foreign policy perspective, in the unlikely event of a decisive opposition victory, Thailand&#39;s relations with the West stand to improve dramatically. Alternatively, continued military-backed rule via election interference will harm relations with the United States in the short term, but <a href="/article/stumbling-blocks-bidens-new-indo-pacific-economic-bloc">Washington&#39;s security relationship with Bangkok</a> will ultimately drive a restabilization of relations. The impact of this political turmoil would likely extend to the end of the year and possibly beyond.&nbsp;

Thai Political Chaos Likely to Give Rise to Protests

Vietnam&#39;s appointment of a new president will end a brief period of political turmoil, while an aggressive fight against corruption may negatively impact economic activity. Vo Van Thuong&#39;s <a href="/article/what-make-vietnams-new-president">appointment as Vietnam&#39;s state president</a> on March 2 represents a consolidation of power under Vietnamese Communist Party chief Nguyen Phu Trong that will put an end to <a href="/article/vietnams-president-forced-out-what-now">factional power struggles</a> within Vietnam&#39;s elite politics, at least until the next leadership turnover in 2026. This means that Vietnam&#39;s <a href="/article/broadening-anti-graft-campaign-complicates-vietnam-s-economic-future">anti-corruption campaign</a> will intensify during the second quarter and beyond. In the long term, this campaign may result in a more transparent business environment in Vietnam, which will make the country more attractive to foreign investors. In the short term, however, the continued arrests of businesspeople and government officials accused of corruption will result in investors and public officials taking a much more cautious approach to their interactions, which is likely to slow investment decisions and the granting of public approvals to businesses (as officials will be fearful of granting approvals because they are uncertain what will trigger a corruption violation). Even with these measures in place, Vietnam&#39;s approach to corruption will remain reactive, meaning many of the structural socio-political conditions that foster corruption will remain unaddressed. &nbsp;

Vietnamese Politics Stabilize, but Anti-Corruption Efforts Constrain Economic Activity

Middle East and North Africa

Turkey&#39;s May 14 elections will not immediately change the country&#39;s expansionary economic strategy or foreign policy, but a split result could produce a political crisis that in turn sparks a balance-of-payments crisis. Turkey&#39;s presidential and parliamentary elections will pit an <a href="/article/opposition-outlook-improves-ahead-turkeys-presidential-vote">empowered opposition</a> led by the Republican People&#39;s Party against an entrenched Justice and Development Party (AKP). While the results may be close, there is substantial policy overlap between the two rivals, which means that a radical change of economic and foreign policy direction is improbable regardless of the winner, at least not immediately. Both sides favor continued expansionary economic policies and support for the country&#39;s lower and middle classes in the face of high inflation. Both sides also are relying on nationalist voters for a victory, ensuring Turkey&#39;s foreign policies remain largely stable, from neutrality in the Russo-Ukrainian war to anti-Kurdish stances in Syria and Iraq. Polls suggest the opposition might take control of at least <a href="/article/gauging-political-fallout-turkeys-massive-earthquakes">one branch of government</a>, most likely parliament. If so, the opposition will face substantial efforts to overturn the result from AKP-controlled electoral boards, courts and the media if the AKP decides to reject the outcome of the vote. This could result in a partial or total rerun of the elections or in disruptive clashes between the president and parliament. In this scenario, a political crisis might spark capital flight, frighten off investment, further weaken the lira and produce a balance of payments crisis that could threaten Turkey&#39;s ability to pay for some imports or even service its foreign debt.&nbsp;

Turkey Holds Contentious Elections

Israel&#39;s coalition government will continue its drift toward far-right policies, which will produce domestic and external pushback that could destabilize the coalition. Israel will continue to entrench itself in the West Bank, adding new settlements while <a href="/article/what-far-right-s-electoral-victory-means-israel">far-right parties</a> in the government push for the legalization of previously outlawed outposts, sparking unrest in the West Bank and straining Israel&#39;s relations with its Arab neighbors. Israel&#39;s government will also continue to push for an internal reshaping of the balance between democratic institutions to allow it to enact more of its policies without judicial checks and to favor religious communities and institutions over secular communities and institutions. These actions will spark sustained protests that might produce isolated acts of violence inside Israel, and will spark concern about the health of Israeli democracy from allies in Europe, the Gulf Arab states, the United States and among Diaspora Jews. This international and domestic concern will spark friction within the ruling coalition, where more secular and centrist elements of the Likud party will push back against the far right, potentially destabilizing the coalition. While no major <a href="/article/what-netanyahus-judicial-reforms-mean-israels-economy">risk to Israel&#39;s economy</a> will emerge in the quarter thanks to its low debt-to-GDP ratio, low unemployment and strong recovery from the economic effects of COVID-19, limited numbers of tech companies and workers will likely relocate from Israel in the wake of the passage of religious and/or far-right domestic policies.&nbsp;

Israel's Rightward Lurch

Saudi Arabia&#39;s stricter regional financial support strategy that ties continued Saudi donations to the recipient government&#39;s willingness to support IMF-aligned economic reforms will enter force in the second quarter as Riyadh pressures its regional partners to remain committed to reform programs. This shift in strategy will deepen the commitment to structural reforms from some governments that depend on Saudi financial support, like Egypt and Yemen. Greater focus on Yemen&#39;s financial stability and commitment to reforms also comes amid a Saudi push this quarter for a new settlement or lengthy cease-fire, which is more likely to happen given the Saudi-Iranian rapprochement. For governments that struggle to implement reforms due to governance crises (such as <a href="/article/can-new-government-halt-lebanon-s-free-fall">Lebanon</a>), however, this new situation will only contribute to worsening financial crises. Saudi Arabia&#39;s change of strategy (a part of its Vision 2030 goal of becoming a more transparent and predictable foreign investor) will over time result in other wealthy Gulf donors (such as the <a href="/article/inevitable-unraveling-saudi-uae-ties">United Arab Emirates</a> and Qatar) emulating Riyadh&#39;s moves. &nbsp;

A Shifting Saudi Donor Strategy

Egypt&#39;s <a href="/article/egypts-economy-feels-squeeze-prolonged-ukraine-crisis">cost-of-living crisis</a> will deepen during the quarter, as Cairo will stay committed to revenue-generating and foreign currency-protecting measures to help guarantee continued IMF loan support. During the quarter, Egypt&#39;s government will expand some social benefits for some Egyptians, including its cash transfer program, in a bid to help struggling citizens. But it will also make some progress on plans to <a href="/article/amid-rising-inflation-egypt-mulls-more-subsidy-cuts">resume fuel subsidy cuts</a>, which will stoke anti-government sentiment. Egypt&#39;s persistently high inflation and weak local currency will prevent emerging market investors from trusting and participating in the government&#39;s privatization drive as Cairo tries to attract foreign currency. State-owned enterprise reforms will also stop short of reducing the military&#39;s enormous role in the economy despite growing demands that Cairo do so. The IMF&#39;s performance review at the end of June will likely reveal Cairo&#39;s firm commitment to reforms that consolidate its public finances despite Egypt&#39;s highest inflation in five years. This means that Cairo will likely receive the next tranche of the $3 billion loan agreed to in December 2022. Egyptians&#39; growing willingness to complain about the government&#39;s lack of care for their economic bottom line will increase the risk of social unrest, but most protest activity will remain online rather than turning into truly disruptive protests because of the strength of the country&#39;s security apparatus.&nbsp; &nbsp;

Egypt's Cost-of-Living Crisis Deepens

Anti-government demonstrations in Iran will likely occur&nbsp;occasionally throughout the quarter, but will not threaten the continuity of the regime or its core policies. Tehran&#39;s approach to <a href="/article/where-are-protests-iran-headed">dissuading participation in protests</a> by arresting and executing some protesters is unlikely to outweigh many Iranians&#39; growing anger at their government&#39;s economic and social policies, which many think detract from their well-being, safety and livelihoods. Grassroots political organizers will demand liberal reforms, but hard-line politicians and the government will use their institutional strength to maintain their preferred conservative social policies, including unpopular policies like headscarf requirements. Iran&#39;s rial will remain under pressure in the quarter because of Western sanctions, increased import costs caused by the Russian invasion of Ukraine and domestic unrest, stoking the cost-of-living crisis. But the financial pressure will not be enough to convince Tehran to strike a <a href="/article/addressing-irans-nuclear-and-non-nuclear-activities-uss-options-are-slim">nuclear deal agreement</a> with the West that could alleviate some sanctions pressure, especially as Iran&#39;s continued transfer of missiles and other weapons to Russia for use in Ukraine complicates the possibility of talks.

Continued Unrest in Iran

South Asia

Violent resistance to the Taliban will likely resurge with the arrival of spring and the start of the traditional fighting season, exacerbating instability amid worsening humanitarian conditions and sustained Taliban disunity. The arrival of more temperate weather and the increased availability of potential fighters as the poppy growing season tapers off in some regions will <a href="https://threatlens.stratfor.com/content/afghanistan-iskp-bombs-press-event-shiite-cultural-center-north" data-content-type="lens_incident_report">drive increased violence</a> over the quarter. The Islamic State Khorasan Province will likely regularly attack Taliban leaders and fighters as well as religious minorities. The group will also likely attack foreign diplomats and nationals in Afghanistan, and occasionally conduct cross-border attacks in a bid to undermine the Taliban&#39;s foreign relations and limit its prospects for attracting foreign investment. While the Taliban&#39;s killing of <a href="https://threatlens.stratfor.com/content/afghanistan-taliban-claims-victories-after-killing-two-key-islamic-state-leaders" data-content-type="lens_incident_report">two senior ISKP leaders</a> in February may indicate improving counterterrorism capabilities, potentially via intelligence sharing by regional countries, further reported successes and demonstrable reductions in militant attacks will be necessary to assuage international concerns over security. Anti-Taliban resistance forces, primarily in the northeast, will also likely increase their attacks, but probably will remain a localized risk unless resistance groups better coordinate their activities or obtain foreign support. Meanwhile, Afghans will likely continue to demonstrate a high tolerance for Taliban rule and for poor humanitarian and economic conditions, but the end of winter will offer greater opportunities for protests and violent resistance. &nbsp;

Violence Resurges in Afghanistan as Fighting Season Begins

The Indian central bank&#39;s tighter monetary policy plus moderating domestic consumption will result in slower economic growth, while state elections will likely delay economic reforms. India&#39;s economy will grow moderately during the second quarter compared to the <a href="/article/india-poised-weather-coming-global-economic-storm">high growth in 2022</a> because the resurgence in domestic consumption after the lifting of COVID-19 restrictions is losing momentum. In addition, India&#39;s central bank will continue to tighten monetary policy, causing a slowdown in consumption and manufacturing. State elections will likely delay the implementation of controversial reforms, such as the privatization of electricity distribution, in the short term. The southern state of Karnataka, one of India&#39;s largest in terms of economic might and a political prize strongly contested by the Bharatiya Janata Party and its rival parties, will hold assembly elections in May. This will test the popularity of the BJP and the main opposition Indian National Congress (which has historically done well in the state) ahead of general elections in 2024. Meanwhile, power demand will be very high due to extreme heat and steady electricity consumption, creating risks of disruptions to power supplies that could negatively affect industrial output. Government measures like significant coal imports and instructing utilities to operate at their highest capacity to meet surging demand could, however, mitigate the crisis. On the foreign policy front, India and China will continue their <a href="/article/china-india-diplomacy-reduces-border-tension-normalization-remains-unlikely">timid diplomatic rapprochement</a> after recent events including their first diplomatic meeting regarding their border disputes and China&#39;s foreign minister&#39;s participation in the G-20 foreign ministers meeting in India. This will lower the risk of border clashes in contested areas.

India's Economy Slows Amid High Inflation

While the Pakistani government will do the bare minimum to secure financial assistance from the International Monetary Fund and bilateral creditors, political volatility and persisting economic crises will prolong policy uncertainty. Pakistan&#39;s coalition government has imposed various austerity measures since January to meet IMF demands and obtain the next tranche of its $6 billion bailout program. In the likely event the IMF clears the next tranche, it will facilitate financial assistance from bilateral creditors like Saudi Arabia, which has conditioned funds on the implementation of economic reforms and political stability. This could help Pakistan avoid a sovereign debt default in the immediate term. <a href="/article/where-pakistans-economic-crisis-headed">Deep structural problems</a> including low revenue collection, high levels of foreign debt and high inflation will, however, likely persist. Disruptions to fuel and power supplies are also likely in dry spring months due to high demand compounded by low foreign exchange reserves to fund imports. If the central government succeeds in its attempt to delay legislative elections in Punjab in April and Khyber-Pakhtunkhwa in May, severe social unrest will follow. If the elections take place, the Pakistan Tehreek-e-Insaf led by <a href="/article/khans-showdown-military-tests-pakistans-systems-power">former Prime Minister Imran Khan</a>&nbsp;will likely win, further weakening central government authority.&nbsp;As a result, the national government will implement only the minimum requirements of the IMF plan in the short term; after June, the risk of policy uncertainty emerges. Due to both economic and political factors, the risk of social unrest will be high in Pakistan. Meanwhile, Tehrik-i-Taliban Pakistan attacks are poised to worsen, galvanized by the group&#39;s increasing number of successful attacks and Pakistan&#39;s ineffective counterterrorism response. Attacks will likely primarily target security forces mostly in the northwestern province of Khyber Pakhtunkhwa, but will probably also increase elsewhere &mdash; including occasionally in major cities, where risks to civilians are even higher.

Economic and Political Crises Continue in Pakistan

Despite Sri Lanka&#39;s agreement with the IMF, pervasively poor economic conditions will result in frequent episodes of social unrest. The IMF approved a $2.9 billion bailout for Sri Lanka in late March after Colombo met all of the fund&#39;s preconditions for a deal, including tax hikes and spending cuts. During the second quarter, the deal with the IMF will open the door to financial assistance from multilateral lending agencies and bilateral creditors like India. Negotiations over debt restructuring will likely begin, but probably will extend beyond the quarter because of the number and diversity of creditors involved. Popular discontent with the government will remain strong, however, as Colombo&#39;s policies produce higher inflation and higher taxes that worsen the country&#39;s cost-of-living crisis and create a fertile ground for protests, some of which will likely turn violent.&nbsp;Against this backdrop, <a href="/article/significance-sri-lankas-upcoming-local-elections">elections for municipal councils</a> and other local bodies in April will test the <a href="/article/sri-lanka-new-president-emerges-fray-he-task">government&#39;s popularity</a> and serve as a bellwether for the next presidential election, in 2024. If the government tries to delay these elections to avoid significant defeats, widespread protests would be likely.&nbsp;

Amid Risk Of Social Unrest, Sri Lanka Carries Out Austerity Measures

Americas

A decrease in grain exports will likely reduce much-needed foreign currency, increasing the risk of further devaluations of the Argentine peso, new spikes in inflation and companies defaulting on their debt. As Argentina experiences its worst drought in more than 60 years, the country is expected to see a poor harvest for wheat, corn, soybean and other grains. Grain exports are a crucial source of chronically low foreign currency for the country, so lower exports will result in lower forex reserves during the quarter. This will be particularly problematic given that <a href="/article/geopolitics-argentina-superpower-wasn-t">Argentina has limited room to borrow</a> from financial markets because of high interest rates. As such, Argentine companies will be at risk of defaulting or entering into the grace period during which they can still make a payment on their foreign currency-denominated debt due to their inability to access foreign currency, which they receive from the Central Bank. In addition, a lower than expected availability of forex is likely to result in further devaluations of the Argentine peso, which will fuel already high inflation. Similarly, insufficient foreign currency reserves could squeeze public spending efforts, as the government will almost certainly attempt to push for increased spending ahead of October 2023 presidential, legislative and gubernatorial races to appeal to voters. Should the diminished availability of foreign currency impact state-owned oil and gas company YPF or the government&#39;s plan to offer tax incentives for new oil and gas projects, it would likely add to existing concerns among investors and could decrease the number of <a href="/article/argentinas-shale-reach-exceeds-its-grasp">new project starts in Vaca Muerta</a> shale fields. &nbsp;

Drought in Argentina Threatens Access to Foreign Currency

Ongoing investigations and arrests relating to Brazil&#39;s Jan. 8 capital attack will likely stoke political polarization, hindering the government&#39;s ability to pass tax reforms and raise the minimum wage. The Brazilian Supreme Court&#39;s ongoing investigation into former President Jair Bolsonaro&#39;s alleged <a href="/article/gauging-fallout-brazils-capital-insurrection">involvement in January&#39;s riot</a> will likely produce new evidence and, potentially, the arrest of security officials, public officials and military officials over the course of the quarter. Bolsonaro supporters will likely view the crackdown as unfair, which makes some degree of social unrest likely, and a significant number of right-wing lawmakers will try to block left-wing President Luiz Inacio Lula da Silva&#39;s legislative agenda amid rising political polarization. As Lula needs the support of <a href="/article/brazil-gives-bolsonaro-boot-what-now">centrist and right-leaning parties</a>, this situation will likely hinder the administration&#39;s ability to pass a reform to simplify the country&#39;s complex tax code. While centrist parties may agree to some measures to decrease the complexity of the tax system &mdash; which in their view would improve conditions for foreign investment &mdash; they will be highly unlikely to support increased taxation on the wealthy and corporations, one of Lula&#39;s electoral campaign promises. Similarly, Lula&#39;s opponents will likely block the president&#39;s electoral campaign promise to raise the minimum wage.

Brazil Investigates Capital Riot, Halting Lula's Legislative Agenda 

Who Chileans select to write the country&#39;s new constitution will have an outsize impact on the country&#39;s trajectory. If they select a left-wing council to draft the charter, this could result in the expansion of state presence in the economy, spooking businesses. Chile will hold an election May 7 to appoint the 50 members of the constitutional council who will add to a basic text being drafted by a coalition of experts. The inclusion of a group of experts in the constitutional rewrite process guarantees that the final text will almost certainly be more moderate than the left-wing constitution <a href="/article/chile-rejection-new-constitution-wont-put-issue-rest">that Chileans rejected</a> in a referendum in 2023. The new constitutional draft is likely to maintain existing norms such as a bicameral legislative branch and Central Bank independence. Should Chileans select left-wing and independent members, the body can be expected to push for an expanded state presence in sectors such as health care, the pension system and education, potentially reducing private sector control over these sectors. They could also seek to alter water and land rights in the constitution, negatively impacting the country&#39;s copper and lithium mining sectors &mdash; which are reliant on business-friendly aspects of the current constitution. &nbsp;

Chile to Vote for Members of Constitutional Council

Congress is likely eventually to reach an agreement to raise the debt ceiling, <a href="/article/rising-risks-us-sovereign-default">avoiding a default</a>, but U.S. President Joe Biden and the Democratic Party will have to offer concessions to reduce spending in certain areas, such as unspent COVID-19 funds or funding to fight climate change. In January, the U.S. Treasury announced that it had reached the $31.4 trillion federal debt ceiling and begun implementing extraordinary measures to continue paying its bills, but those measures will soon be exhausted, after which the United States would default on its debt without an increase in the debt ceiling. The measures&#39; exhaustion is projected to occur between July and September, but that date could be moved into the second quarter depending on how much money the Treasury raises in April&#39;s tax returns. A U.S. default would have massive global repercussions, potentially triggering a recession in the United States and a <a href="/article/assessing-risk-us-financial-crisis-following-svb-collapse">large sell-off of Treasury bonds</a>, as they would no longer be viewed as one of the world&#39;s safest assets. To avoid such consequences, Congress and the White House will likely reach an agreement and avoid a default, but this will require significant compromises from the White House and the Democratic Party. The Republicans&#39; <a href="/article/what-midterm-results-mean-us-foreign-policy">narrow control of the House</a> has empowered fiscal conservatives and the Republicans&#39; use of the so-called Hastert Rule, which means that bills will be brought to the floor only if a majority of Republican House members back them, will make it difficult for moderate Republicans to shrug off the demands from more fiscally hawkish members of the party.&nbsp;

The U.S. Will Not Default, but Fiscal Conservatives Will Wrest Concessions

Sub-Saharan Africa

The persistent risk of social unrest will complicate the new Nigerian president&#39;s push to clamp down on insecurity, remove a costly fuel subsidy, and revitalize the country&#39;s oil and gas production. The Nigerian Supreme Court&#39;s confirmation of Bola Tinubu&#39;s victory in the February presidential election will result in continued protests from opposition groups. While the protest movements are <a href="/article/two-years-after-lekki-massacre-police-brutality-still-looms-large-over-nigerian-elections">unlikely to turn as bloody</a> as in past election years because of voter apathy, public anger over alleged electoral fraud will still likely constrain Tinubu&#39;s <a href="/article/presidential-election-nigeria-will-likely-entrench-status-quo">ability to implement his agenda</a> for his first 100 days, particularly his promise to remove Nigeria&#39;s costly fuel subsidy (which has been budgeted only through July). While Tinubu pledged to remove the fuel subsidy during the presidential campaign and has enough support in the Senate and the House of Representatives to do so, he may be forced to keep the subsidy in place if the protests against its removal wind up being particularly large. Keeping the costly subsidy will increase the risk that credit rating agencies will downgrade Nigeria and that the budget deficit for the 2023-4 financial year will become unsustainable. While Tinubu&#39;s plans to augment the police force to crack down on insecurity in the northern and southeastern states and <a href="/article/nigeria-s-long-awaited-oil-reforms-may-finally-be-here">revitalize the oil and gas industry</a> by privatizing oil refineries and attracting renewed investment are unlikely to garner the same public pushback, preexisting constraints &mdash; including corruption, weak regulatory frameworks and investor hesitancy &mdash; will likely delay their implementation. Taken together, this means that Tinubu&#39;s first few months in office are likely to be a continuation of the status quo &mdash; portending gradual declines in security, the oil and gas industry, foreign investment, and economic growth. &nbsp;

Nigeria Weighs Its Popular, but Costly, Fuel Subsidy 

In the Sahel, France&#39;s new regional strategy and military exit from Burkina Faso coupled with Russia&#39;s growing influence raise the risks of greater regional insecurity, likely posing renewed threats to political stability. France&#39;s withdrawal from <a href="/article/burkina-fasos-government-demands-french-military-withdrawal">Burkina Faso in February</a> and its new approach to Africa will result in a visible decrease in French troops stationed in the continent. While France maintains military bases in neighboring Chad and Niger, decaying relations with the transitional governments of Burkina Faso and Mali have hamstrung France&#39;s counterterrorism presence in the region, contributing to <a href="/article/how-coastal-west-africa-responding-expanding-jihadist-threat">expanding jihadist insurgencies</a> in the Western Sahel. Amid high anti-French sentiment, popular support for Russian paramilitary interventions remains widespread, potentially foreshadowing a Wagner Group intervention in the capital of Burkina Faso in the coming months. While some Sahelian military leaders point to the Wagner Group as a viable replacement for French forces, the Russian presence in Mali has coincided with worsening insecurity. With or without a Wagner deployment, greater insecurity is also likely in Burkina Faso over the next quarter. Across the region, expanding jihadist insurgencies are likely to provide opportunities for further military coup attempts in Burkina Faso, Mali or Niger. Additionally, France&#39;s presence in Chad and Niger will not insulate those countries&#39; governments from political volatility: Both the Chadian and Nigerien militaries have factions that support a French presence and some that do not.&nbsp;

Worsening Insecurity Breeds Political Instability in the Sahel 

South Africa&#39;s government will push through measures to address the electricity crisis, but long-standing constraints &mdash; including corruption, poor investment and mismanagement &mdash; will likely limit their success. While internal divisions within the governing African National Congress will limit South African President Cyril Ramaphosa&#39;s ability to pass some legislation, he appears to have consolidated power within the party to the extent that he can push through <a href="/article/south-africa-bails-out-eskom-again-blackouts-remain-likely">limited electricity reforms</a> to alleviate the country&#39;s energy crisis. Ramaphosa and newly appointed Electricity Minister Kgosientsho Ramokgopa will likely use <a href="/article/what-does-state-disaster-declaration-mean-south-africas-electricity-crisis">the state of disaster</a> declared in February to allocate greater financial resources to the rehabilitation of failing coal-fired power plants and attempt to spur greater privatization of the electricity sector. These measures probably will not involve the complete privatization of the majority of the electricity supply, meaning they are unlikely to significantly alleviate the electricity crisis. In the short term, this means that electricity shortages will continue to depress business activity &mdash; particularly in the informal sector &mdash; and the risks to agricultural production, poultry production, food security, health services and access to education will increase. As such, foreign investment is unlikely to pick back up in the second quarter, and opposition parties and trade unions will mobilize popular discontent into demonstrations against the government.&nbsp; &nbsp;

South Africa's Electricity Crisis Response Fall Short 

The Democratic Republic of Congo&#39;s attempt to blame Rwanda for ongoing fighting in eastern provinces will sustain diplomatic spats with Rwanda, inhibit counterinsurgency efforts and engender political uncertainty. Congolese President Felix Tshisekedi will run for reelection Dec. 20, but has recently floated postponing the election due to ongoing insurgencies in some of the country&#39;s most populous provinces in the east. Tshisekedi <a href="/article/rwandas-role-congo-s-forever-war">largely blames Rwanda</a> for the conflict, as Rwanda allegedly supports one of the most active rebel groups, the March 23 movement. Tshisekedi will continue with this anti-Rwanda rhetoric during the quarter to bolster his domestic support. But the conflict and the potential electoral delay it could cause will very likely fuel animosity from opposition leaders. This political volatility could lead to violent unrest across the country during the quarter, with potential disruptions to mining operations in the southern and eastern provinces and to business activity in Kinshasa and other cities. Regionally, Tshisekedi&#39;s anti-Rwanda position is likely to <a href="/article/rwandas-attack-congolese-jet-escalates-border-tensions">worsen the diplomatic dispute</a> between Congo and Rwanda, inhibiting ongoing attempts to sustain cease-fires in North Kivu province and complicating the East African Community&#39;s collective response to the conflict.

2023 SECOND-QUARTER FORECAST

Europe

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