Hello, and thank you for joining me for a preview of Stratfor’s third quarter forecast.
First, the somewhat good news. The financial aspect of the European crisis will stay contained this summer: The European Central Bank’s promise of intervention in sovereign markets, the European Commission’s softened deficit targets and general policy shift away from austerity, the summer recess for most European parliaments, plus a steady stream of foreign tourists in Europe providing employment for youth in the south means we’re unlikely to see significant instability in the coming months.
But, remember that the financial crisis is just the first phase of a much deeper socioeconomic crisis in Europe. Unemployment rates will continue to rise across the continent, putting core countries like France and the Netherlands in an increasingly uncomfortable position with Germany. There are many serious structural reforms for European leaders to address, but the cost and benefit of deeper integration will prevent that debate from translating into action. Plus, Germany’s campaigning in the lead-up to Sept. elections will only further paralyze decision-making at the EU-level.
While Europe remains locked in debate amid a deepening recession we’ll be watching Russia closely this quarter as it continues to pick up assets in Central and Eastern Europe. Russia will have wins and losses as it tries to maintain competitiveness in the European energy market, and debate over energy and investment reforms in Russia will fuel escalating power struggles in the Kremlin.
This quarter will be a tumultuous one for China, as a new and quite apprehensive administration takes the first steps to try and correct deep imbalances in the financial system. China’s credit tightening amid slowing growth could lead more banks and companies to default or even collapse. There will be periodic liquidity injections and bailouts to temper the fallout of this policy, but China is bracing itself for painful, but necessary, layoffs, bankruptcies and trade frictions with the developed world.
Syria will continue to capture headlines as the regime attempts a multi-pronged offensive to try and consolidate control over the country’s core and reinforce supply routes to the north and south of Damascus. Assad’s forces will have the advantage this quarter, with a healthy stream of weapons, fighters and aid coming from Iran, Hezbollah, Iraq and Russia. The rebels will also see an increase in weapons shipments, but it won’t be enough to match the firepower of the Assad’s forces. We do not expect the United States to move ahead with widely speculated plans to impose a no-fly zone, nor do we expect Assad’s forces to be able to rout out the rebels from Aleppo this quarter.
Protests that erupted in both Turkey and Brazil will simmer down this quarter, but still carry consequences for the coming months. Turkey, for example, will see its peace process with Kurdish militants stumble and an ambitious plan by Erdogan to strengthen the presidency through constitutional referendum will also falter.
And a bright light in Mexico – The country will begin the most ambitious attempt at energy reform in decades this quarter. The negotiations will be intense and a decision on the legislation is unlikely to be passed in the next three months, but the process marks a crucial first step in Mexico’s ability to recover oil production and encourage investment to sustain Mexico’s positive economic outlook.
Disruptions to Libyan and Nigerian oil production, increased strain on the Mercosur trade bloc, violent strikes in the mining sector in South Africa, financial trouble in Kazakhstan and much more can be read in Stratfor’s upcoming quarterly forecast and in our daily analysis found at Strafor.com.