We're already midway through the year, and our team is putting the finishing touches on our forecast for the third quarter of 2018. As we do that, we're also taking the opportunity to review our 2018 Annual Forecast. Below, you can check out some of the events that we forecasted back then, which have come to pass in the second quarter of 2018.
We forecasted that the White House would threaten China with more aggressive trade barriers, but that both parties would manage the dispute well enough to prevent a full-blown trade war. And indeed, after a tense period of negotiations, the United States and China announced a trade truce with a vague plan to boost U.S. access to Chinese markets.
China, South Korea and Japan met for their first trilateral summit in years, just as we said they would. Spurred in large part by U.S. trade concerns and ongoing issues with North Korea, the meeting was mainly symbolic rather than substantive.
Vietnam’s National Assembly released a draft bill designed to strengthen its coast guard's maritime surveillance and enforcement capabilities. This confirms our forecast that internal stability and the support of other world powers has given Vietnam the strength it needs to push back more against China, especially in the South China Sea.
One place where we got it wrong? We anticipated that the United States would be most likely to choose strategies of containment and deterrence when dealing with North Korea, and we didn’t recognize the possibility of U.S. President Donald Trump and North Korean leader Kim Jong Un engaging in dialogue through the summit set for June 12.
We knew Canada, Mexico and the United States would be unable to reach a NAFTA agreement in the first half of the year, despite U.S. President Donald Trump's insistence that they do so. Though the countries resolved many issues, they still need to agree on subjects such as rules-of-origin requirements for the automotive sector, a dispute-settlement panel for businesses, labor standards and a sunset clause allowing periodic review of the the treaty.
Members of the traditionally protectionist trade bloc Mercosur, such as Argentina and Brazil, launched free trade agreement negotiations with several countries, including Canada, South Korea, New Zealand and Japan, taking advantage of what we identified as a narrow window of opportunity to expand trade horizons before the pro-business administrations in Brazil and Argentina leave office in 2018 and 2019.
Middle East & North Africa
Israel and Iran engaged in escalating strikes and retaliatory responses in the Syrian battle space. We anticipated that Saudi Arabia and Israel would revitalize their campaign to weaken Iran and its allies, including Lebanese militant group Hezbollah, as they took advantage of a window of opportunity provided by U.S. support.
The Iran nuclear deal is still alive, but only barely. European leaders lobbied hard to encourage the United States to remain in the deal, as we said they would, but the United States left the nuclear deal on May 8. Now, Iran is looking to Europe and Russia for support as it tries to salvage the agreement.
As we forecasted, Russia is shifting its foreign policy and trying to insulate itself against U.S. and European sanctions. Moscow has stepped up its outreach to China and Japan and increased its involvement in conflicts in the Middle East.
Formerly isolationist Uzbekistan is increasing its security cooperation with Russia now that new leadership in the Uzbek government is making an effort to improve relations with its neighbors. This approach has also opened the door for Moscow to expand its security presence in the region.
In Italy, the anti-establishment Five Star Movement and the right-wing Northern League parties both became more powerful, making up the new Italian government formed on June 1. The parties are more willing than others to challenge eurozone rules, which is causing concern in financial markets.
We forecasted that the Spanish government led by Prime Minister Rajoy would be particularly weak as a minority government, and indeed, after several party members were convicted of corruption and the legislative branch carried out a vote of no confidence, the government was replaced on June 1.
In Hungary, Prime Minister Orban’s Fidesz Party won the country's general elections, confirming our forecast that nationalist parties would perform well. The Fidesz Party victory signals that Budapest will maintain euroskeptic policies at both the domestic and foreign levels.
Pakistan has passed a constitutional amendment merging the Federally Administered Tribal Areas, which are home to many Afghan militants, with a neighboring province, furthering our forecast that the country would try to encourage militants into the political mainstream and amp up its strategy of projecting military power into neighboring Afghanistan.
Pakistan is reaching out to Russia to build a stronger diplomatic and security relationship, announcing cooperation plans between the two countries on May 1. As its friendship with the United States cools, Pakistan has been needing to find partners, like Russia, that are interested in supporting the Taliban as a way of countering other influences.
South Africa's new President Cyril Ramaphosa has charged ahead with reforms and anti-corruption measures to move the country away from years of populism. Driven by Ramaphosa, South Africa is working to foster a more attractive business and foreign investment environment.
Egypt was unable to prevent Ethiopia from forging ahead with its flagship megaproject, the Grand Ethiopian Renaissance Dam, which is currently scheduled to be completed by October. Moreover, Sudan has, as we forecasted, switched from siding with Egypt to siding with Ethiopia after recognizing that it will gain irrigation capacity.
At the end of the year, we'll be publishing our full scorecard assessing the accuracy of the entire annual forecast. And on Monday, June 11, you can check out our quarterly forecast and read what we expect to happen in the third quarter of 2018.