What the world to expect from 2019 third-quarter?

What the world to expect from 2019 third-quarter?

The world’s leading geopolitical intelligence platform Stratfor presents its 2019 Third-Quarter Forecast. It touches on main economic and political trends in the world. 

The U.S.-China Trade War Will Drag On. While there is a small window for a truce between U.S. President Donald Trump and Chinese President Xi Jinping, there is a stronger likelihood that the White House will follow through on its threat to impose tariffs on remaining Chinese imports. Nearly every move China makes to push back and cope with tariff pressure, including ramping up state backing for strategic industries and retaliating against U.S. businesses, will drive the two economic giants further apart as the trade war continues to damage the global economy.

Iranian Retaliation Will Raise the Risk of a Military Confrontation. Iranian retaliatory moves against the United States, including the resumption of nuclear activities and threats to shipping in the Strait of Hormuz, will raise the threat of U.S. punitive strikes on Iran. Even though the White House intent will be to limit offensive action and avoid bogging itself down in another politically unpopular war in the Middle East, the potential exists for a more serious escalation. Short of the negotiation Trump envisioned for Iran, progress could be made toward establishing a deconfliction channel via third-party mediators.

A High Stakes Tech Battle Will Drive Fragmentation in the Global Tech Sector. Far-reaching U.S. export restrictions against Chinese telecom giant Huawei Technologies Co. will nearly paralyze the company in the near term, and it could strengthen the White House's ongoing campaign to deter other countries from working with Huawei on 5G rollouts. Even if the United States agrees to a partial relaxation of its ban against Huawei, China will move full steam ahead to accelerate indigenous semiconductor development and software alternatives to its Western competitors. At the same time, U.S. regulators will ramp up their investigations of U.S. tech giants over antitrust, privacy and data protection concerns. 

Mexico Faces an Uphill Battle to Appease Trump and Avert Tariffs. Though Mexico narrowly averted U.S. tariffs by pledging to do more on border security, it is not out of the danger zone yet. Mexico will fall short of meeting Trump's demand that it chokes off migrant flows, and Trump will likely rely on tariffs, or at least the threat of tariffs, as his preferred enforcement tool.

Geopolitical Risk Will Create Significant Headwinds for the Global Economy. Global economic growth estimates are headed for another downgrade in the third quarter. Intensifying U.S. trade conflicts with China, along with the lingering threat of a major disruption to North American trade, will continue to sap investor confidence and drive a U.S. Federal Reserve decision to ease interest rates. The Chinese yuan is likely to depreciate past 7 to the dollar, though China's Central Bank will intervene to avoid a much steeper devaluation that would accelerate capital flight and apply stress on a number of emerging markets. Between slowing consumer demand and a higher risk of supply disruptions from a potential Iran conflict, oil markets will remain in flux.

Brexit Chaos and Italy Will Weigh on Europe. The United Kingdom will get a new hard-line prime minister, who will inevitably hit a wall with Brussels when negotiating the terms of the United Kingdom's future relationship with the European Union. The risk of a no-deal Brexit will rise through the quarter, but the likely result will be more delays and possibly a path to early elections. And even as Rome manages to dodge EU sanctions over its ballooning deficit, Italy's fiscal policies, weakening banking sector and fragile government coalition will continue to stress the European Union.

Great Power Competition Will Create Opportunity But Mostly Risk for Middle Powers. As U.S. competition with Russia persists, Poland will be able to take advantage of the White House's strategic focus on Eastern Europe, advancing plans to rotate more U.S. troops through Poland and pushing for targeted U.S. sanctions against Nord Stream 2. Turkey and India, meanwhile, will remain in the White House's crosshairs over their energy relationships with Iran and defense ties to Russia, with New Delhi facing the additional threat of tariffs this quarter.

Military-Backed Transitions in North Africa Face Major Hurdles. The fall of legacy dictators in Sudan and Algeria have emboldened opposition groups hungry for political change. The militaries of each country trying to manage the tumultuous transition will struggle to satisfy opposition demands while navigating elite power spats behind the scenes. Sudan will rely more on brute force to quell unrest, while Algeria's more diverse set of power brokers will likely become mired in political negotiation as unrest persists.

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