<?xml version="1.0" encoding="UTF-8"?><rss version="2.0" xmlns:content="http://purl.org/rss/1.0/modules/content/" xmlns:wfw="http://wellformedweb.org/CommentAPI/" xmlns:dc="http://purl.org/dc/elements/1.1/" xmlns:atom="http://www.w3.org/2005/Atom" xmlns:sy="http://purl.org/rss/1.0/modules/syndication/" xmlns:slash="http://purl.org/rss/1.0/modules/slash/" > <channel> <title>Brazil – The Musings Of A Politics Junkie & Closet Economist</title> <atom:link href="https://kurtdavisjr.com/tag/brazil/feed/" rel="self" type="application/rss+xml" /> <link>https://kurtdavisjr.com</link> <description></description> <lastBuildDate>Tue, 16 Apr 2024 18:01:28 +0000</lastBuildDate> <language>en-US</language> <sy:updatePeriod> hourly </sy:updatePeriod> <sy:updateFrequency> 1 </sy:updateFrequency> <generator>https://wordpress.org/?v=6.7.2</generator> <item> <title>Top 10 Economies To Watch In 2024</title> <link>https://kurtdavisjr.com/top-10-economies-to-watch-in-2024-china-india-russia-saudi-arabia-argentina-germany-chile-mexico-brazil-kenya/?utm_source=rss&utm_medium=rss&utm_campaign=top-10-economies-to-watch-in-2024-china-india-russia-saudi-arabia-argentina-germany-chile-mexico-brazil-kenya</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Tue, 16 Jan 2024 15:34:17 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[Europe]]></category> <category><![CDATA[Latin America]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[2024]]></category> <category><![CDATA[Argentina]]></category> <category><![CDATA[Brazil]]></category> <category><![CDATA[Chile]]></category> <category><![CDATA[China]]></category> <category><![CDATA[Economy]]></category> <category><![CDATA[Germany]]></category> <category><![CDATA[India]]></category> <category><![CDATA[Kenya]]></category> <category><![CDATA[Mexico]]></category> <category><![CDATA[RUssia]]></category> <category><![CDATA[Saudi Arabia]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=772</guid> <description><![CDATA[2024 is the year of elections...for most voters, “It’s the economy, stupid” may reign supreme...these are 10 bellwether economies to watch in 2024...]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-full is-resized"><img fetchpriority="high" decoding="async" width="886" height="600" src="https://kurtdavisjr.com/wp-content/uploads/2024/01/Economies-2024-iStockphoto.jpeg" alt="" class="wp-image-774" style="width:810px;height:auto" srcset="https://kurtdavisjr.com/wp-content/uploads/2024/01/Economies-2024-iStockphoto.jpeg 886w, https://kurtdavisjr.com/wp-content/uploads/2024/01/Economies-2024-iStockphoto-300x203.jpeg 300w, https://kurtdavisjr.com/wp-content/uploads/2024/01/Economies-2024-iStockphoto-768x520.jpeg 768w, https://kurtdavisjr.com/wp-content/uploads/2024/01/Economies-2024-iStockphoto-750x508.jpeg 750w" sizes="(max-width: 886px) 100vw, 886px" /><figcaption class="wp-element-caption">(Photo Credit: iStock)</figcaption></figure></div> <hr class="wp-block-separator has-css-opacity"/> <h4 class="wp-block-heading has-text-align-center"><strong style="font-style: italic;"><strong style="font-style: italic;">…</strong><em>The bellwether economies for 2024</em><em>…</em></strong></h4> <hr class="wp-block-separator has-css-opacity"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p><strong><em>This originally appeared in </em></strong><em><strong><a href="https://www.thedailystar.net/opinion/geopolitical-insights/news/top-10-economies-watch-2024-3522366" data-type="link" data-id="https://www.thedailystar.net/opinion/geopolitical-insights/news/top-10-economies-watch-2024-3522366">The Daily Star</a></strong></em>.</p> <p>2024 could be a year of optimism (or fret) depending on your views on elections. Voters in more than 50 countries will go to the polls this year.</p> <p>“It’s the economy, stupid”—the infamous phrase from former U.S. President Bill Clinton’s presidential campaign—may reign supreme this year for most elections. And consequently, in a globally connected world, this can mean watching other economies across the globe.</p> <p>Below are the top ten bellwether economies to watch in 2024.</p> <h2 class="wp-block-heading"><strong>China</strong></h2> <p><em>Can China fix the real estate sector and strengthen the Chinese (shadow) banking sector?</em></p> <p>Did the Chinese 2023 experience resemble a replay of the U.S. economy in 2008? The 2008 Great Recession was caused by the bursting of a housing bubble followed by a collapse of U.S. shadow banks—financial institutions that act like banks—that were both generally unregulated and without the capital cushion required at traditional banks. The Chinese real estate sector today—much bigger than 2008—has a shadow banking problem, underscored by the recent Zhongzhi Enterprise Group Co. bankruptcy filing which followed the company’s admission of being “severely insolvent” with a $36.4 billion shortfall. The upside to the Chinese crisis today is that the creditor pool is significantly Chinese and foreign creditor exposure is nowhere near the levels observed in 2008 to the U.S. Still, China must quickly find a solution to a predominantly internal problem that weighs on the overall economy (with growth slowing to 5.2%). A weakened Chinese economy may excite some China critics, but China is too big to stay weak too long without a greater spillover to other economies.</p> <h2 class="wp-block-heading"><strong>India</strong></h2> <p><em>India sees an opportunity and chases after it…</em></p> <p>In a world of superlatives, one economic debate focuses on whether India passes China – India is the 5<sup>th</sup> largest economy and China is the 2<sup>nd</sup> largest economy in the world. Indian Prime Minister Narendra Modi rightfully sees an opportunity to challenge China with an entrepreneurial population that exceeds 1.4 billion and an economic engine alongside it (with growth projected above 6%). A couple banks, including Barclays and HSBC, have done the math on what growth India requires to replace China as the biggest contributor to the world’s growth. The conclusion is the country requires significantly more investment to get to that level…thus the ultimate focus (after the 2024 elections) will be on turbocharging investment across the economy.</p> <h2 class="wp-block-heading"><strong>Saudi Arabia</strong></h2> <p><em>Steadily but surely towards 2030 Vision…</em></p> <p>Saudi Arabia is another country that sees opportunity. Oil revenue continues to fund the kingdom’s ambition despite a price drop and budget deficit in 2023 – the average Brent price per barrel dropped to below $80 in 2024 after averaging above $82 in 2023 and above $100 in 2022. Nonetheless, Saudi Arabia’s Public Investment Fund (PIF) invested $31.6 billion across 49 deals in 2023, and the messaging from the kingdom is spending will continue as the country pushes toward its Vision 2030 economic transformation goals. As hosts of the Asian Winter Games in 2029, Expo 2030 in Riyadh, and FIFA World Cup in 2034, officials are keeping their eye on the ball. Pun intended. This is not all sports spending (despite the news splash with Cristiano Ronaldo and LIV golf) as PIF spent significant money on construction, aircraft leasing, gaming, and renewable energy.</p> <h2 class="wp-block-heading"><strong>Argentina</strong></h2> <p><em>What will the presidency of Javier Milei teach us?</em></p> <p>Argentina has become synonymous with hyperinflation. The economy battled nearly 100% inflation in 2022 and nearly 200% in 2023. Newly elected President Javier Milei cannot exactly turnaround the Argentine economy overnight, yet the Argentine population may have that expectation. Investors (and politicians) will be examining Milei’s every move and the responses within the economy and from the voters for any indication that the country’s distorted economy is on the mend. Also, can the Milei administration privatize state entities to the benefit of the country?</p> <h2 class="wp-block-heading"><strong>Kenya</strong></h2> <p><em>Can Kenya balance the books in 2024?</em></p> <p>News that Kenya would consider load shedding—scheduled power outages to manage demand on the grid—to address the frequent blackouts experienced in 2023 sent shock waves across the African investment community. Kenya is a leader in renewable energy with more than 70% of its power from sources, such as geothermal, hydro, and wind. Actis, which was one of the leading investors in renewables in Africa, however, did close its office in Kenya. President William Ruto’s administration has introduced tax proposals to strengthen the country’s ability to repay its debt but rising inflation and the high cost of living continue to hamper the economy and the proposed tax hikes. A sovereign default could create an unprecedented economic downturn for the country with potential regional spillover. Ruto’s team knows this and is being honest with the public about efforts to avoid it.</p> <h2 class="wp-block-heading"><strong>Russia</strong></h2> <p><em>Commodities and sanctions…how will it all play out?</em></p> <p>The War in Ukraine will continue to dominate the conversation. The Western sanctions imposed against Russia in response to its invasion of Ukraine were designed to destroy the Russian economy and cut it off financially (and politically) from the rest of the world. Yet, Russian officials (and central bankers) have proven resilient in managing the economy. The budget deficit seen at the beginning of 2022, as result of advanced payments for the war, largely disappeared by the end of 2023 with Russia circumventing the oil price cap (and related sanctions) and raking in significant income from commodities. It is expected that the U.S. and Europe will try to introduce new sanctions (and tighten existing ones) thus the focus will be on how Russia adapts to the changing economic environment. Russia (alongside other OPEC+ members) will continue to be a big driver of commodity prices.</p> <h2 class="wp-block-heading"><strong>Germany</strong></h2> <p><em>Chancellor Scholz has to manage expectations at home and within the EU…</em></p> <p>Germany did not have the best 2023. The country has been beset by a downturn in global demand, energy woes, and an unexpected court decision striking down a big part of Chancellor Olaf Scholz’s budget – the federal constitutional court ruled that €60bn allocated to the German climate transformation fund was illegal. Scholz is focused on supporting the German economy (especially via energy investments) and supporting Ukraine against Russia but faces structural and financial limitations with both causes. He accordingly will have to right-size German ambitions to match available funding while not getting too distracted by European Parliament elections in June.</p> <h2 class="wp-block-heading"><strong>Mexico</strong></h2> <p><em>Nearshoring, immigration, border security, and a presidential election…tough mix?</em></p> <p>Mexico is a political and economic conundrum. The country has benefited from “friend-shoring” and the changing dynamics between the U.S. and China with Mexico passing China as the U.S.’s top trading partner. Even if relations improve between the U.S. and China, U.S. officials (irrespective of president) will likely continue to focus on shifting business to countries that are politically aligned and geographically close to the U.S. Mexico (and Canada) remain in the pole position to benefit under the United States-Mexico-Canada Agreement (USMCA), which was the trade agreement that replaced NAFTA in 2020. Yet, Mexico and the U.S. struggle to resolve issues on immigration and border security. A Mexican election in June (and American election in November) introduces political uncertainty into the equation. For now, in Mexico, the ruling party candidate Claudi Sheinbaum is expected to win with some analysts predicting (or hoping) that she may be easier to work with than the current President Andrés Manuel López Obrador.</p> <h2 class="wp-block-heading"><strong>Brazil</strong></h2> <p><em>Lula is in the driving seat with commodity prices again funding Brazilian ambition…</em></p> <p>Brazil is another country that has quietly benefited from the “new” U.S. and China dynamic alongside the war in Ukraine and now turmoil in the Middle East. Booming commodity prices was a gift to President Luiz Inácio Lula da Silva in his return to the presidential office at the start of 2023. The numbers should continue to benefit trade and bolster Brazilian coffers under Lula’s more state controlled economic model – the bigger uncertainty centers on how Lula and Brazil utilize the “good times.” Lula always has big ambitions and will likely leverage political capital, such as the G20 Presidency in 2024 and an expanded BRICS group, to elevate Brazil’s standing on the global stage. Lula also needs to prepare the country for COP30 in 2025…he will be courting investors for the next 18 months.</p> <h2 class="wp-block-heading"><strong>Chile</strong></h2> <p><em>Does Chilean rate cuts set a precedent for the rest of Latin America?</em> </p> <p>Chile will continue rate reductions in 2024, after announcing a 75-basis point cut in December last year and signaling another cut by the end of January this year. The quick pace of easing in 2024 should be welcomed by Chileans as domestic demand lags and unemployment remains high – Chilean officials saw growth stagnate last year but expect growth to be above 2% this year. If policymakers can achieve their 3% inflation target, it is expected other countries in Latin America will try to emulate the Chilean approach. So far so good as inflation continues downward…President Gabriel Boric would appreciate the positive news after a couple failed attempts to rewrite the constitution.</p> <hr class="wp-block-separator has-css-opacity"/> <p></p> ]]></content:encoded> </item> <item> <title>Top 10 Economies To Watch In 2023</title> <link>https://kurtdavisjr.com/daily-star-top-10-economies-to-watch-in-2023-germany-united-states-united-kingdom-brazil-china-india-nigeria-turkey-argentina-uae/?utm_source=rss&utm_medium=rss&utm_campaign=daily-star-top-10-economies-to-watch-in-2023-germany-united-states-united-kingdom-brazil-china-india-nigeria-turkey-argentina-uae</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Sun, 01 Jan 2023 17:24:24 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[Europe]]></category> <category><![CDATA[Latin America]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[2023]]></category> <category><![CDATA[Argentina]]></category> <category><![CDATA[Brazil]]></category> <category><![CDATA[China]]></category> <category><![CDATA[Economy]]></category> <category><![CDATA[Germany]]></category> <category><![CDATA[India]]></category> <category><![CDATA[Nigeria]]></category> <category><![CDATA[Prediction]]></category> <category><![CDATA[Turkey]]></category> <category><![CDATA[United Arab Emirates]]></category> <category><![CDATA[United Kingdom]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=664</guid> <description><![CDATA[Everyone knows economists have a poor track record of predicting recessions. Yet, it is hard to ignore the growing consensus among economists that the combination of inflation and interest rate hikes alongside tempered Chinese demand and US economic uncertainty could be the perfect storm for a global recession. Those same economists, however, disagree on the depth and length of a potential recession as well as the underlying indicators that will answer their questions. Thus, instead of agreeing on a list of indicators, let's focus on some countries that could be bellwethers for changing headwinds in 2023...]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-large"><img decoding="async" width="1024" height="576" src="https://kurtdavisjr.com/wp-content/uploads/2023/01/top_10_economies_to_watch_in_2023-Daily-Star-1024x576.jpg" alt="" class="wp-image-665" srcset="https://kurtdavisjr.com/wp-content/uploads/2023/01/top_10_economies_to_watch_in_2023-Daily-Star-1024x576.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2023/01/top_10_economies_to_watch_in_2023-Daily-Star-300x169.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2023/01/top_10_economies_to_watch_in_2023-Daily-Star-768x432.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2023/01/top_10_economies_to_watch_in_2023-Daily-Star-750x422.jpg 750w, https://kurtdavisjr.com/wp-content/uploads/2023/01/top_10_economies_to_watch_in_2023-Daily-Star.jpg 1059w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">(Photo Credit: REUTERS)</figcaption></figure></div> <p><strong><em>This originally appeared in </em></strong><em><strong><a href="https://www.thedailystar.net/opinion/views/news/top-10-economies-watch-2023-3210131" data-type="URL" data-id="https://www.thedailystar.net/opinion/views/news/top-10-economies-watch-2023-3210131">The Daily Star</a></strong></em>.</p> <p>Everyone knows economists have a poor track record of predicting recessions. Yet, it is hard to ignore the growing consensus among economists that the combination of inflation and interest rate hikes alongside tempered Chinese demand and US economic uncertainty could be the perfect storm for a global recession.</p> <p>Those same economists, however, disagree on the depth and length of a potential recession as well as the underlying indicators that will answer their questions. Thus, instead of agreeing on a list of indicators, let’s focus on some countries that could be bellwethers for changing headwinds in 2023.</p> <h2 class="wp-block-heading"><strong>Germany: A cold and costly winter, what will summer bring?</strong></h2> <p>A 34.5 billion Euro (USD 36.6 billion) government rescue package for German utility company, Uniper, alongside a 6.3 billion Euro (USD 6.7 billion) rescue package for the former European trading and supply unit of Gazprom, SEFE Securing Energy for Europe GmbH, is a sign of the times. The European Union, which recently approved Germany’s nationalisation of the two major gas companies, included a long list of conditions for the rescue packages, which requires both firms to sell off assets and subsidiaries. The two deals are part of the 200 billion Euro (USD 213 billion) German package to support households and companies against rising energy costs and Russia’s decision to weaponize energy by cutting off the flow of gas.</p> <p>German Chancellor Olaf Scholz is confident his country will get through winter without an energy crisis. But the more important question is how Germany confronts the greater economic hurdles over the long term. German leadership will primarily focus on replacing Russian gas and combatting inflation in 2023, but it will also have to rethink trade and economic growth. Russia is gone as a major trading partner for the near term and its other major trade partner, China, is increasingly butting heads with other Western leaders, in particular the US.</p> <p>Chancellor Scholz is working with “prudence and pragmatism” to diversify trade for his country. Absent any set timelines, supporters and critics alike will be focused on 2023 to see if Germany can take further steps to fix its energy problem and address its trade dilemma. If not, then Germany can expect a long winter and a long summer.</p> <h2 class="wp-block-heading"><strong>United States: A high federal funds rate and a slowing economy (but strong job market?)</strong></h2> <p>Midterm elections are done and now comes the real work for President Joe Biden. The US economy will likely slow in 2023 with GDP growth at slightly below 1 percent, compared to an estimated 2 percent in 2022 and 6 percent in 2021. Consumer spending is still expected to rise slightly in 2023 with inflation slowing to 4 percent to 5 percent. All these numbers will form the backdrop for the federal funds rate, which is expected to rise to 4.75 percent to 5.00 percent in 2023, with two hikes expected in February and March.</p> <p>A high federal funds rate will maintain the slowdown in the US housing market with 30-year fixed mortgages at roughly 7 percent (compared to 3.25 percent at the beginning of 2022). That said, while not buying houses today, Americans continue to spend their excess savings built up in 2020 and 2021 as well as buy more on credit. Defaults, however, remain low despite consumer borrowing being at an all-time high. That may be a different story for the global economy where numerous central banks raise rates in line with the US federal funds rate, which may create more pressure in other economies not tied to the US.</p> <p>None of these issues matter too much (at least, in the US) if Americans are employed and can ultimately pay their bills. The Biden administration will continue to emphasise the strong job market and claim there is no “true” recession (just maybe a “technical” one if that happens). Hopefully the level of slowdown and how to combat it will dominate the discussion when the time comes – the world is already sceptical of the US fractious politics yet know that decisions in the US on certain issues (such as inflation and interest rates) will continue to have global ramifications.</p> <h2 class="wp-block-heading"><strong>United Kingdom: What or who can reverse the turmoil of 2022?</strong></h2> <p>The UK is tumbling (that may be a euphemistic description). The UK witnessed a record economic decline of 11 percent in 2020 followed by 7.6 percent growth in 2021. Then 2022 happened. The economy is expected to grow by 4.2 percent, and the former Chancellor of the Exchequer (under Boris Johnson) Rishi Sunak became the UK’s first prime minister of Asian origin, but those may be the only two highlights for the year.</p> <p>Queen Elizabeth II passed on September 8, which was the second day on the job for then-Prime Minister Liz Truss who would only last 50 days after replacing Boris Johnson. Her tenure, however, was longer than that of her Chancellor of the Exchequer Kwasi Kwarteng who lasted a mere 38 days after his budget promising large tax cuts for the wealthy triggered a major backlash from the public. The market also sent a message with the pound nearly hitting parity with the dollar in 2022 as investors dumped the currency and UK bonds. The Bank of England intervened to prevent the bottom from falling out and the IMF openly criticised the UK government on its tax plans.</p> <p>So, what about 2023? The economy is expected to contract by 1.3 percent by little fault of Prime Minister Sunak. He should create political stability and bring sensibility and confidence to the office (though probably too little too late for the Tory party). An increase in labour participation and a potential reduction in inflation looks possible, which could ease the pain of an impending recession. Still, the UK looks susceptible to any external shock on a global stage and looks ultimately weakened by Brexit – I am not sure Prime Minister Sunak or any Labour Party leader can necessarily change that perspective in the short term.</p> <h2 class="wp-block-heading"><strong>Brazil: Which Lula will govern it?</strong></h2> <p>Former president Luiz Inácio Lula da Silva has returned with a very close victory in the presidential runoff on October 30. Despite winning only 51 percent of the vote, Lula looks like a man ready to govern with a major presidential mandate, especially with Brazil’s congress having approved an additional 168 billion reais (USD 32 billion) to be spent on social welfare programmes and other campaign promises. Leftists and environmentalists are excited by this new spending as the money will go to the pockets of Brazilians (indirectly ensuring some Covid-19 benefits become permanent) and to the protection of the Amazon (a concern low on former president Jair Bolsonaro’s priority list).</p> <p>But what is the plan for the greater Brazilian economy? Lula will have to govern with a very conservative legislature though the recent spending bill suggests he is off to a good start. He will have to combat inflation, which giving more “free money” to the poor will not accomplish, and will have to manage the surpluses of high commodity prices for when prices ultimately normalise again (which was not his track record in his previous presidential stint). Lula will also need to attract more foreign investment and bolster growth (now estimated to be at 2.1 percent by the economy minister) with a balance of policy between his leftist leanings and the conservative thinking of Bolsonaro. If Lula fails to kickstart South America’s largest economy, it could have reverberations beyond simply Brazil.</p> <h2 class="wp-block-heading"><strong>China: Zero-covid – to be or not to be?</strong></h2> <p>To say 2022 was tough for China would be an understatement. The real estate market struggled with numerous developers missing debt payments, sale of new homes floundering, and construction stalled at various sites across the country. Exports, which surged during covid, slowed as inflation tightened the pocketbooks for most consumers. Chinese companies, in particular technology companies, felt pressure from both sides with the US increasingly scrutinising Chinese-based companies, such as Huawei and Tik Tok, and China equally tightening its grips on the tech sector through increased fines and other regulatory enforcements. Lastly, a zero-covid policy consistently introduced disruption and stoppage to everyday life in Chinese cities with lockdowns undercutting both supply and demand in the local market and beyond.</p> <p>In the last month, China has abruptly relaxed many of its zero-covid policies. This should automatically change the outlook for 2023 but, like other countries, China is unlikely to return to its pre-Covid lifestyles. What has changed (or may change) is not clear. Nevertheless, a new-normal that is less reflective of zero-covid and more reflective of the global “living with covid” could help rebuild local demand.</p> <p>The outlook for exports and Chinese trade, however, remains challenging as other economies potentially fall into a recession. Conservative estimates have Chinese growth at 5 percent in 2023. If developed economies avoid a recession and maintain strong consumer demand, then the Chinese outlook could return to its former days. Otherwise, there is the narrative (which could become more reality) of investors exiting China due to slowing growth and increased scrutiny from the West.</p> <h2 class="wp-block-heading"><strong>India: An alternative to China?</strong></h2> <p>Those investors concerned with the Chinese economy are looking to India as an alternative option for Asian exposure. On one hand, India could be a good alternative with Indian stocks up 4 percent (in local currency terms) this year compared to the 20 percent drop for global stocks. The country has a booming IT sector and a very large populace (which is becoming increasingly educated with more money to spend). On the other hand, India, simply put, is not China. First, the combined market cap of Chinese firms listed in Hong Kong and New York, which have been hammered down in 2022, is roughly USD 6 trillion while the market cap of Indian stock markets, which benefited from a positive 2022, is still nearly 45 percent smaller in size at USD 3.4 trillion.</p> <p>Secondly, India is a major importer of commodities, in particular oil. The country increased its import of Russian oil by 500+ percent after Russia invaded Ukraine in February. This cheaper source of oil will presumably not last forever and India will have to revisit how to fast-track its energy transition. Finance minister Nirmala Sitharaman has already made this a big piece of India’s 2023 budget. Thirdly, despite some recent successes, investors still are not sold on India as a greater manufacturing hub. Some investors prefer to “wait and see” on China.</p> <p>Lastly, the successes of the Adani and Ambani groups among others do not necessarily sell foreign investors on their ability to succeed there too. Can India shift international investor perspective and corporate mindsets in 2023 at greater pace than recent years? If so, India could have a big 2023 with Chinese economic light at its dimmest in a long time and investors open to consider alternatives. If not, then either India missed an opportunity, or the Chinese economy rebounded with vigour.</p> <h2 class="wp-block-heading"><strong>Nigeria: Can it regain its former momentum?</strong></h2> <p>Africa’s most populous country has an election in 2023 with incumbent President Muhammadu Buhari unable seek a third term. Bola Tinubu, who is 70, will lead the ruling All Progressive Congress (APC) party while Atiku Abubakar, who is 76 and lost to Buhari in the 2019 presidential election, will lead the main opposition People’s Democratic Party (PDP). Fifteen other parties have also nominated candidates for this election. Early polls suggest Labour Party candidate, Peter Obi at the ripe age of 61, could be the front runner. He is the favourite among young voters who account for an overwhelming majority of the electorate (85 percent of the Nigerian electorate is younger than 35). This election, in theory, would be about addressing their concerns – primarily jobs and economic opportunities – if the main candidates were not old(er).</p> <p>The economy is struggling. Economic growth is forecasted to fall to 3.0 percent in 2023 compared to an estimated 3.2 percent in 2022. These numbers would not be considered anaemic if 2022 was not the year of oil producers. Africa’s biggest oil producer failed to capture the GDP growth and foreign reserves that other OPEC members saw in 2022. Nigeria lacks modernised infrastructure for production and transport and depends on oil imports for domestic needs (as the country also lacks the necessary refineries to service its local demand).</p> <p>Significant money is spent by the government to provide various subsidies, which are both costly to maintain and politically difficult to remove (let alone change). The naira continues to struggle against the dollar while the government lacks dollar reserves (Emirates ultimately suspended flights to the country after it failed to release outstanding funds from ticket sales trapped in the country).</p> <p>And, while Nigerians are entrepreneurial and have built an ecosystem to support their efforts, polls show that they are not happy with the existing economic systems and structures. Can the next leader meet their demands and unlock Nigeria’s true potential?</p> <h2 class="wp-block-heading"><strong>Turkey: What will happen after the June election?</strong></h2> <p>Another country facing a major election this year is Turkey with President Recep Tayyip Erdoğan seeking another term in the June election. The former Prime Minister has controlled the country (in some form) since 2003 when he became prime minister (until 2014) and the country was governed under a parliamentary system. He became president in 2014 and, by referendum, the country switched to a presidential system in 2017. This election is expected to be close, though this all depends on the opposition’s ability to band together against President Erdoğan, whose Justice and Development Party (AKP) is currently governing in a coalition with the Turkish National Movement Party (MHP).</p> <p>The economy is in complete turmoil with a consistently plummeting currency, high inflation, and nearly 70 percent of the population unable to pay for food and housing, according to a survey by Yöneylem Social Research Centre. Under President Erdoğan, there has been consistent GDP growth at an average of 5.8 percent between 2002 and 2021, yet the currency has gone from 8 Turkish lira to a dollar in September 2021 (once assumed the bottom end of valuation) to nearly 19 Turkish lira.</p> <p>Inflation accordingly skyrocketed to a 25-year high of 85.5 percent, according to the Turkish Statistical Institute, in October. Some other analysts and organisations put inflation at a rate two times higher. Irrespective of what the actual number is, the economy is overheating, and recent policies have not changed the outlook. If President Erdoğan is re-elected, many investors assume things will remain the same, and if he loses, many investors assume things may change – but in what way? Only positive certainty is Turkish citizens will vote on June 18, 2023.</p> <h2 class="wp-block-heading"><strong>Argentina: Is this the year Argentina turns things around?</strong></h2> <p>Like Turkey and Nigeria, Argentina has an election in 2023 with its country at a crossroads. The Argentinian economy is in tatters with inflation reaching 100 percent this year. Unemployment rose to 7.1 percent, which was its first increase since 2020, and, while the economy is still expected to expand roughly 5 percent this year, the country’s vital agricultural sector may potentially contract on an annual basis due to crop drought hitting the country’s exports. These numbers do not speak well for the Argentinian economy going into 2023.</p> <p>Furthermore, it will take more than winning the World Cup in Qatar to bring people to the country – through October, almost 600,000 more Argentinian travellers left the country than foreigners who arrived to the country which equates to a tourism deficit for a country well known for its tourism. Lastly, the fiscal deficit is widening despite the country promising the IMF to shrink it. A troubling track record of 9 sovereign defaults luckily has not kept investors away (but how long before investors give up?).</p> <p>So, why is this a country to watch? This is South America’s second largest economy, and something must change. Nothing like a year of campaigning in a country that has mandatory voting to start that process. Three coalitions currently dominate Argentinian politics: the centre-left Frente de Todos (“Everyone’s Front”); the centre-right Juntos por el Cambio (“Together for Change”); and the populist-libertarian La Libertad Avanza (“Freedom Move Forward”). Incumbent President Alberto Fernández of Frente de Todos says he will seek re-election. He may face a challenge from his Vice President Cristina Fernández de Kirchner, who was president from 2007 to 2015, but, after being convicted on corruption charges in December, sentenced to six years in jail, and barred from holding public office, she will have to pull a “Lula” (i.e., have her convictions annulled).</p> <p>The candidate for Juntos por el Cambio is not clear with a few members fighting for the nomination and it is widely expected that La Libertad Avanza will nominate Javier Milei, an economist who raffles off his legislative salary every month to protest what he calls government theft. Milei has been compared to Donald Trump and Jair Bolsonaro for his critics on the Argentinian ruling class and pledge to move away from the leftist policies that have controlled the country for decades.</p> <p>Whoever wins this election, especially if not the incumbent, will have to make drastic policy changes to jumpstart an economy expected to grow less than 1 percent in 2023 (or even potentially contract).</p> <h2 class="wp-block-heading"><strong>United Arab Emirates: Will it demonstrate its resilience (and creativity) again?</strong></h2> <p>The UAE continues to demonstrate resilience. Expo 2020 provided the early boost to the economy to kickoff 2022 and the country has maintained that momentum throughout the year. The World Cup in Qatar was a boon for the UAE economy as fans chose Dubai as their favourite base destination for attending the games along with being a favourite location for holiday. Dubai is also a favourite destination for remote work and the country is offering various visas to facilitate foreigners making the UAE home. Dubai real estate accordingly is growing at one of the fastest rates in the world with numerous millionaires and billionaires flooding into the city.</p> <p>In Abu Dhabi, sovereign wealth funds and other government related entities are investing globally and locally with government coffers plentiful from strong oil prices. Because of local investment, the non-oil sector of the UAE economy is expected to grow 3.9 percent compared to 2.7 percent growth for the entire economy. Critics are running out of criticisms for the economic success in the desert by Emirati leadership. Though it is fair to question whether others can imitate the UAE or, at least, capture similar economic momentum.</p> <p>Other touristy destinations, such as Indonesia and Thailand, are unlikely to become financial hubs and also have not seen the same level of return with foreign visitors, while other regional financial hubs, such as Hong Kong and Singapore, are not exactly becoming touristy spots. Still, the UAE is a must-watch, if not solely as an indicator of how those with money or those facing conflict are choosing to set up their life and navigate the world.</p> <hr class="wp-block-separator has-css-opacity"/> <p></p> ]]></content:encoded> </item> <item> <title>Top 10 Economies to Watch in 2022</title> <link>https://kurtdavisjr.com/top-10-economies-to-watch-in-2022-south-africa-brazil-china-mexico-france-spain-thailand-uae-saudi-arabia-united-kingdom-lebanon/?utm_source=rss&utm_medium=rss&utm_campaign=top-10-economies-to-watch-in-2022-south-africa-brazil-china-mexico-france-spain-thailand-uae-saudi-arabia-united-kingdom-lebanon</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Fri, 24 Dec 2021 13:00:18 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[Europe]]></category> <category><![CDATA[Latin America]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[Boris Johnson]]></category> <category><![CDATA[Brazil]]></category> <category><![CDATA[China]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Economic Recovery]]></category> <category><![CDATA[Economy]]></category> <category><![CDATA[Emmanuel Macron]]></category> <category><![CDATA[France]]></category> <category><![CDATA[Jair Bolsonaro]]></category> <category><![CDATA[Japan]]></category> <category><![CDATA[Lebanon]]></category> <category><![CDATA[Mexico]]></category> <category><![CDATA[Saudi Arabia]]></category> <category><![CDATA[South Africa]]></category> <category><![CDATA[Spain]]></category> <category><![CDATA[Thailand]]></category> <category><![CDATA[UAE]]></category> <category><![CDATA[United Kingdom]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=526</guid> <description><![CDATA[Vaccines gave hope going into 2021…fast forward a year later and the omicron variant is not providing the same confidence, especially with much of the globe still not fully vaccinated and / or without a booster shot. Such a reality has created renewed economic uncertainty. As we enter 2022, there are several countries whose economic trends will provide some insight into the global economy going forward...]]></description> <content:encoded><![CDATA[ <div class="wp-block-image is-style-default"><figure class="aligncenter size-full"><img decoding="async" width="711" height="460" src="https://kurtdavisjr.com/wp-content/uploads/2021/12/economic-growth.jpg" alt="" class="wp-image-536" srcset="https://kurtdavisjr.com/wp-content/uploads/2021/12/economic-growth.jpg 711w, https://kurtdavisjr.com/wp-content/uploads/2021/12/economic-growth-300x194.jpg 300w" sizes="(max-width: 711px) 100vw, 711px" /><figcaption>(Photo Credit: Getty)</figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center has-medium-font-size wp-block-heading"><strong><em><em><em><em><em><em><em>The bellwether economies for 2022…</em></em></em></em></em></em></em></strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>Vaccines gave hope going into 2021…fast forward a year later and the omicron variant is not providing the same confidence, especially with much of the globe still not fully vaccinated and / or without a booster shot.</p> <p>Such a reality has created renewed economic uncertainty. As we enter 2022, there are several countries whose economic trends will provide some insight into the global economy going forward.</p> <h3 class="wp-block-heading"><strong>South Africa</strong></h3> <p class="has-medium-font-size"><em>Omicron, travel bans, and bad luck…things must change in 2022?</em></p> <p>The IMF forecasts sub-Saharan Africa to grow 3.8% in 2022, but that number does not capture the reality of Africa’s largest economies, especially in South Africa. Angola and Nigeria can blame oil demand and prices…South Africa, however, will largely be staring in the mirror.</p> <p>Years of mismanagement of government funds and entities have led to today’s reality with power blackouts undercutting economic growth, particularly in the mining sector, and the last of foreign investors constantly contemplating their exit from the country.</p> <p>Covid-19 has not helped the economic situation with unemployment north of 30% and riots bringing Johannesburg to a standstill back in July. The discovery of Omicron by South African scientists also troubled the country. No good deed goes unpunished (so they say) as the world implemented travel bans and devastated South Africa’s tourism industry before it could kick-off the busy season. In 2022, tourism will sadly remain at the mercy of the world’s ability to navigate covid-19, which is looking less and less promising as the holiday season in many countries hit full stride with a mix of various lockdowns and curfews.</p> <p>South Africans will be looking to mining AGAIN in 2022 to formulate any form of economic recovery. But it is hard to imagine similarly record-high commodity prices. For example, platinum group metals, such as palladium and rhodium, topped $2,950 and $30,000 per ounce respectively in 2021 as compared to prices below $2000 and $8,000 in May 2020. According to the Economist, South Africa last had economic growth of 6% more than 40 years ago. A year of sustained quarterly growth would be welcomed and a sign that things are changing for the better…yet that may also be too high of a bar.</p> <h3 class="wp-block-heading"><strong>Mexico</strong></h3> <p class="has-medium-font-size"><em>In need of a stimulus plan and better supply chain access…</em></p> <p>It is easy to forget how bad 2020 was for some countries. For example, the Mexican economy contracted more than 8% in 2020. In some odd irony (or mishap), the administration of Mexico’s President Andrés Manuel López Obrador is constantly touting 6% “economic growth” in 2021. But the truth (or math) behind that 6% is that Mexico has a long way to go to return to pre-pandemic GDP levels.</p> <p>The economy slowed in Q3 2021 with the Mexican industrial sector growing only 0.3% in Q3 2021, compared to 0.4% in Q1 and 0.8% in Q2, according to Deloitte. The rising prices of raw materials and constant disruption in global supply chains continue to undercut the industrial sector and the greater economic recovery in the country, such that the 6% economic growth in 2021 may be an overstatement.</p> <p>The forecasted 3.3% economic growth in 2022, according to the IMF, also looks fragile. Obrador’s reluctance to spend too much money during the pandemic, however, suggests his administration could pump more money into the economy today to lift economic growth prospects going into next year…Mexico earmarked about 2% of GDP to pandemic relief while Latin American, on average, allocated 8.5%. Still, Obrador’s team will have to be quite crafty to create a stimulus plan to spark the economy while not triggering an inflation issue and avoiding the boobytraps of increasing interest rates. That is easier said than done, especially when social programs are political footballs and raising tax revenue is not exactly easy in Mexico.</p> <h3 class="wp-block-heading"><strong>China</strong></h3> <p class="has-medium-font-size"><em>It is not Japan in the 1990s but there are underlying problems…</em></p> <p>Japan, in the 1990s, endured a prolonged recession following an economic bubble in the 1980s. The stories of the Japanese economy eclipsing the American economy quickly evaporated into the well-documented “lost decade,” which involved a recession accompanied by a financial crisis and excess debt.</p> <p>There are some similarities to China. The Chinese struggled in the third quarter of 2021 with annualized economic growth dipping below 1% – still above 0% but far from the 6-8% that the world is accustomed to with China. The collapse in the real estate market choked off economic growth while repeated lockdowns (via China’s “covid zero” approach) seemingly created a few economic false starts for the country. An energy crisis is only further fueling the problem as coal and natural gas prices hit record highs.</p> <p>Yet Chinese Vice-Premier Liu He says China is on track to beat its GDP growth target of ‘above 6%’ this year. If this is true, then maybe China has the resiliency to stabilize the economy and maintain growth within a reasonable range, as characterized by Chinese leadership. Some economists forecast a period of stagflation, which may be an overstretch based on the Q4 numbers to date. On the other hand, forecasting more than 6% economic growth sounds brazen in today’s market for China. Maybe 3% or 4% is more reasonable…but then again China growing at 3% will likely mean a downturn in commodity prices due to shrinking Chinese demand and a general global slowdown (as China’s economic growth is a driving factor for demand and supply numbers in various markets across the globe).</p> <h3 class="wp-block-heading"><strong>Brazil</strong></h3> <p class="has-medium-font-size"><em>It is election time…</em></p> <p>“I’m back!” recently announced Brazil’s former President Luiz Inácio Lula da Silva…It is not clear if we should be watching Brazil because of its politics or its economy. First, the general election will be held on October 2, 2022. The return of former president, Luiz Inácio Lula da Silva, continues to be the backdrop to any decision by current President Jair Bolsonaro, except, in 2022, there could be actual consequences at the ballot box.</p> <p>Lula’s overshadowing presence helps to explain Bolsonaro’s economic decisions. His pandemic relief programs, which included monthly payments of R$600 to roughly 68 million Brazilians with single mothers receiving roughly R$1,200, are not exactly the conservative federal spending championed by Bolsonaro in his campaigns. The spending may have helped Brazil in 2021 with economic growth still tracking for more than 5%.</p> <p>However, the outlook for 2022 appears grim with economists at Latin America’s largest bank, Itau Unibanco, forecasting a potential recession at negative 0.5% growth. The change to negative 0.5% growth in 2022 reflects aggressive actions taken by the Brazilian central bank to hike benchmark interest rates. Itau imagines the rate could climb to 11.25% as the central bank focuses on controlling inflation. The interest rate hike will puncture an already fragile recovery. Another wave of covid due to Omicron or any other variant thereafter could effectively undue the recovery altogether with less than 50% of the Brazilian population fully vaccinated.</p> <p>The economy and early polls suggest Lula has a good chance to retake the presidency. But Brazilians sadly must be asking if that will change the country’s situation. The economic challenges coupled with covid-19 are not resolved by simply changing presidents…Lula’s supporters can ask supporters of President Joe Biden about the process of escaping the covid-19 malaise.</p> <h3 class="wp-block-heading"><strong>Saudi Arabia</strong></h3> <p class="has-medium-font-size"><em>More than oil…</em></p> <p>Saudi Arabia’s Oil Minister Abdulaziz bin Salman is warning of a potential energy crisis because investment in oil is dropping, which could create a supply deficit over the long-term. Critics will say the message and warning is self-serving for a country that has built it wealth on the back of healthy oil prices. That said, the International Energy Agency forecasts 2030 oil demand to remain steady with pre-covid demand in 2019 (approximately 100 million barrels per day). The Saudi oil minister imagines production could fall by 30 million barrels per day to 70 million barrels per day. If true, all these numbers bid well for the kingdom and it oil reserves.</p> <p>But it is not only oil that has political and economic analysts paying close attention. Saudi Arabia forecasts 7.4% economic growth in 2022 (after 2.9% this year) along with its first budget surplus since 2013 (when average closing price for oil was nearly $98 per barrel). The oil crash in 2014 wiped out Saudi budget surpluses. This time, Saudi leadership will deliver a surplus without $100 oil. Also 2022 is likely not 2013 where economic growth was strong in China and the U.S.</p> <p>To achieve this surplus, the world’s biggest exporter has, in the words of Finance Minister Mohammed bin Abdullah Al-Jadaan, decoupled government expenditures from revenue. Saudi leadership is reducing military spending after already reducing social expenditures during covid last year and simply sticking the extra cash in the government reserves. The budget does depend on an oil price of $70 per barrel. That number itself will be an indicator of global supply and demand across various sectors. A striving Saudi economy irrespective of the price movement will say a lot more about the changing GCC and regional economic ingenuity amid a pandemic, oil price uncertainty, and not exactly ideal political harmony (for example, good relations with Israel have been offset by more strained relations with Iran).</p> <h3 class="wp-block-heading"><strong>Thailand</strong></h3> <p class="has-medium-font-size"><em>How quick can tourism ramp up?</em></p> <p>Southeast Asia’s second largest economy was on the list last year because it was a question of when tourism would return. Going in 2022, the question is how quickly can tourism ramp up? Most studies suggest that tourism in Thailand will not return to pre-pandemic levels until 2024. And that number assumes there are no major travel shutdowns and there is steady tourism mixed with overall economic growth across the globe. The omicron border closures and restrictions (including the re-tightening of the Thailand entry rules) are a perfect example of how vulnerable that trajectory could be with new variants.</p> <p>Thailand is expected to grow 3.5% to 4.5% in 2022 following an estimated growth of 1.2% this year. The 1.2% looks partially promising, considering passengers on international flights to Thailand were down 95% in September 2021 compared to 2019 and hotels only filled 9% of their rooms, according to a study by McKinsey & Company. Optimism nevertheless can only go so far…finding a way to get people on a plane to Thailand should be the major focus and may require being creative with other countries on how to ensure individuals can travel cross-border and be properly tested such that both resident and host countries feel secure. Thailand can rest assured other Asian countries will be watching their efforts.</p> <h3 class="wp-block-heading"><strong>United Kingdom (UK)</strong></h3> <p class="has-medium-font-size"><em>Despite the covid news, steady growth endures…</em></p> <p>The UK is the darling for covid jokes…it has struggled to control its cases as well as the narrative around its approach. When the country’s pandemic restrictions, including social distancing and masks requirements, were lifted in July, supporters and critics alike of Prime Minister Boris Johnson were concerned. To be fair Johnson’s announcement on July 19<sup>th</sup> was only about two weeks after Johnson’s American counterpart, President Biden, declared victory against covid. Today, both may regret their summer optimism and messaging. Requiring individuals to course-correct on behavior, i.e. return to previous measures such as masks, is easier said than done as people are rightfully frustrated about the situation.</p> <p>Putting covid aside, the UK economy appears rather resilient. GDP growth is still expected above 6% for 2021 and, while accounting for a slowdown next year, GDP growth is expected to be about 5% in 2022. The economy should also reach pre-pandemic levels in the first quarter of 2022. That said, inflation remains an issue as UK inflation hit a 10-year high in November at 5.1% and may hit 6% by April 2022. The Bank of England took a major first step in fighting inflation with the recent interest rate hike from 0.1% to 0.25%. If the UK can control covid-19 numbers and steady inflation, then credit should go to Johnson. But then again, he may have already lost the narrative on that story despite what looks like a relatively positive outcome.</p> <h3 class="wp-block-heading"><strong>France</strong></h3> <p class="has-medium-font-size"><em>Let’s see how Europe fares…</em></p> <p>The French economy is going strong into 2022 with economic growth expected to be more than 6% in 2021 and north of 4% in 2022. Following the lifting of the lockdown in May, the French economy benefited from a successful vaccination program, i.e. going from about 15% in May to more than 70% today, and pent-up enthusiasm for consumption. Household consumption grew 5% between the 2<sup>nd</sup> quarter and 3<sup>rd</sup> quarter of this year.</p> <p>France will not have similar numbers to end the year or in 2022 as the same favorable conditions do not exist. There is not a similar level of pent-up consumption waiting to be released and covid-19 numbers are increasing. Supply chains also remain fractured which has notably hurt French manufacturing, for example in the automobile sector.</p> <p>President Emmanuel Macron will be focused on curing the supply chain problems, especially as he faces re-election in April. He will also assume the presidency of the Council of the European Union in January and should be focused on supporting the revival of other European Union economies in that role. If Macron has economic success, maybe other countries in Europe can take a few pointers. </p> <h3 class="wp-block-heading"><strong>Spain</strong></h3> <p class="has-medium-font-size"><em>Another European bellwether or simply misleading statistics?</em></p> <p>Most observers are struggling to assess the Spanish economy. A soaring job market and growing tax revenue usually suggests good news for an economy. Yet the discussion on the Spanish economy is centered on missed economic growth targets in the last couple quarters and how it is falling behind its neighbor France. Prime Minister Pedro Sánchez’s administration continues to argue that the country will hit economic growth of 6.5% in 2021 and roughly 7% in 2022, while the European Commission forecasts economic growth of 4.5% in 2021 and 5.5% in 2022. The debate over who is right is becoming more political day by day.</p> <p>The national statistics institute is now in the middle of this debate after it adjusted economic growth numbers for the 2<sup>nd</sup> quarter down to 1.1% from the previously reported 2.8%, which suggests 6.5% for year is not possible. Beyond the GDP estimates, inflation is at record high and Sanchez is ready to spend as much as necessary to achieve such growth numbers. It doesn’t help that many critics believe he is spending with a focus on the 2023 election. The skepticism and lack of certainty on numbers makes Spain a tough case to assess. Still many economists will be watching Spain as a bellwether for Western Europe (alongside with France).</p> <h3 class="wp-block-heading"><strong>United Arab Emirates (UAE)</strong></h3> <p class="has-medium-font-size"><em>Leading the Middle East recovery…</em></p> <p>The United Arab Emirates (UAE) has generally been open since mid-2020. As a result, tourism continues to storm back, buoyed by Expo 2020 attendees and the usual holiday trek for Europeans to Dubai (which has beaches crowded and restaurants and bars fully booked). Many arrivals to Dubai have chosen to stay long term (or until covid is over…if ever) and purchased property which has been a boon to real estate and consumer spending for the country. Oil production and prices also help the UAE economy while foreign investors are happy to invest in a country where local currency is effectively pegged to the dollar thus reducing currency risk. Accordingly, the UAE central bank forecasts the UAE economy to grow 2.1% in 2021, which is nearly double expectations at the end of last year, and to grow 4.2% in 2022.</p> <p>Although most economic indicators are positive, the UAE still faces some challenges. Can Dubai become a long-term option for remote workers? The number of advertisements on European television this year for Dubai in relation to remote work feels less. Can the UAE encourage more people to visit AND live here? More residents spending would help…some data suggests expats living here do not spend (as a % of income) like they did in pre-pandemic times. Thus, it is either more residents or boost resident spending. The track record of UAE leadership suggests the country can and will focus on both goals simultaneously with other ambitions. </p> <h2 class="wp-block-heading"><strong>Honorable Mention…</strong></h2> <h3 class="wp-block-heading"><strong>Lebanon</strong></h3> <p class="has-medium-font-size"><em>Not a bellwether but rather a question of global resilience…</em></p> <p>It is fair to assume that nobody is watching Lebanon as a bellwether for a global recovery. The country remains mired in an economic crisis with the Lebanese currency down more than 90% in the last two years and skyrocketing inflation. The queues for basics, such as food and petrol, are disheartening. And most foreign investors are avoiding the place. It is estimated that 75% to as much as 85% of the Lebanese population is living below the poverty line.</p> <p>People are generally avoiding the country until something changes. Some Lebanese living outside the country may still visit the country but nowhere at a level to replicate the 17-20% that tourism contributed to Lebanon’s pre-pandemic GDP. The new government formed in September led by Prime Minister Najib Mikati, who has previously twice held the position, wants to turn a new page. But so many factors are working against Mikati: the port explosion remains an eyesore for Beirut, wealthy and educated Lebanese continue to leave the country thus further eradicating Lebanon’s tax base; and previous partners appear unwillingly to bailout the country. Thus, why is Lebanon important to watch? Lebanon is a friend of many but does not have any one country willing to support it. If it can find a way out of its current state, it will be a telling story for some downtrodden economies in this ‘covid’ world. Lebanon is not Afghanistan, Sudan, or Tunisia. But let’s assume those countries (and many others) may be watching to understand how Lebanon overcomes its current situation.</p> <hr class="wp-block-separator"/> ]]></content:encoded> </item> <item> <title>Covid-19, Political Unrest, and Economic Challenges: Five Countries To Watch Closely in the Second Half of 2021</title> <link>https://kurtdavisjr.com/covid-19-political-unrest-and-economic-challenges-five-countries-to-watch-closely-in-the-second-half-of-2021-south-africa-india-thailand-brazil-lebanon/?utm_source=rss&utm_medium=rss&utm_campaign=covid-19-political-unrest-and-economic-challenges-five-countries-to-watch-closely-in-the-second-half-of-2021-south-africa-india-thailand-brazil-lebanon</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Tue, 17 Aug 2021 16:36:24 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[Latin America]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[2021]]></category> <category><![CDATA[Brazil]]></category> <category><![CDATA[Brazil Elections]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Cyril Ramaphosa]]></category> <category><![CDATA[Economic Recovery]]></category> <category><![CDATA[Enoch Godongwana]]></category> <category><![CDATA[India]]></category> <category><![CDATA[Jair Bolsonaro]]></category> <category><![CDATA[Lebanon]]></category> <category><![CDATA[Prime Minister Narendra Modi]]></category> <category><![CDATA[South Africa]]></category> <category><![CDATA[Thailand]]></category> <category><![CDATA[Tito Mboweni]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=491</guid> <description><![CDATA[On a global scale, people are angry at the current health and economic environment with protests becoming increasingly prevalent. The question for political analysts and investors is whether the anger and unrest boils to an unsustainable level for some countries....]]></description> <content:encoded><![CDATA[ <div class="wp-block-image is-style-default"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="683" src="https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-1024x683.jpg" alt="" class="wp-image-492" srcset="https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-1024x683.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-300x200.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-768x512.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-1130x753.jpg 1130w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic-750x500.jpg 750w, https://kurtdavisjr.com/wp-content/uploads/2021/08/Protests-Pic.jpg 1200w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Pro-democracy protesters hold up the three-finger salute during an anti-government rally in Bangkok. <br>(Photo Credit: Lillian Suwanrumpha/AFP via Getty Images)</figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading"><strong><em><em><em><em><em><em><em>Can these five countries fix their current situations?</em></em></em></em></em></em></em></strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>At the start of the year, vaccines and feelings of hope could have been the theme.</p> <p>Yet rising covid-19 numbers and a growing number of variants has elevated the tensions over vaccines (and mask mandates) while slowing economies have struck at the hope (or aspiration) for V-shaped recoveries.</p> <p>The lack of turnaround would be ‘okay’ per se if the failure of full-blown recoveries did not also appear to be weakening the social and political fabric of many emerging market countries.</p> <p>On a global scale, people are angry at the current health and economic environment with protests becoming increasingly prevalent. The question for political analysts and investors is whether the anger and unrest boils to an unsustainable level for some countries.</p> <p>Below are five countries to watch closely in the remaining months of 2021.</p> <p class="has-medium-font-size"><strong>Lebanon</strong></p> <p class="has-normal-font-size"><em>Not catching a break with a sovereign default, port explosion, and covid-19 in the last 18 months…</em></p> <p>If the world was not grappling with covid-19, Lebanon would be the big economic storyline. The economic situation, simply put, is a disaster with the World Bank writing, “the Lebanon financial and economic crisis is likely to rank in the top 10, possibly top three, most severe crises episodes globally since the mid-nineteenth century.” Lebanese have witnessed the country’s currency plummet 95% against the dollar with the Lebanese pound now trading at 22,000 to the dollar on the black market. The government is running out of hard currency to subsidize staple products, including medicine and gas, with shelves empty in pharmacies and long queues at the gas station. The exit of Saad Hariri and entrance of billionaire businessman Najib Mikati sadly cannot fix the sectarian nature of politics in the country and the lack of foreign financial support. Now discussions of an army unable to pay its soldiers highlight the slow deterioration of public institutions in a country once viewed as the cosmopolitan haven of the Middle East. The world will continue to look to France, Saudi Arabia, and the U.S. for support…yet those three countries may not be aligned on next steps. If the usual allies do not help and international financial institutions sit on their hands, the admired Lebanese hope and perseverance that found its revival in the 1990s following the end of a brutal civil war may die. To be fair, that hope has fought a port explosion, economic collapse, and a covid-19 pandemic in the last 18 months. </p> <p class="has-medium-font-size"><strong>South Africa</strong></p> <p class="has-normal-font-size"><em>Covid-19 is exacerbating economic challenges and disparities…</em></p> <p>The road to fixing the economy in South Africa was always going to be hard for President Cyril Ramaphosa. But the protests last month initially motivated by the jailing of ex-president Jacob Zuma demonstrated the political and economic challenges of the country. The protests quickly escalated to mass looting and the destruction of business and personal property underpinned by pent-up anger and frustration from many South Africans whose lives have economically snowballed downward. Many are jobless, poor and view their government as corrupt. Covid-19 exacerbates the situation with lockdowns punishing the poorest South Africans as wealthier South Africans has space at home to work and money to buy goods. The ban on selling alcohol felt maternalistic with wealthier South Africans hosting parties with alcohol in their gated communities. The economic disparity is not new (nor unique to South Africa) but covid-19 shined a light on the traumatic and disparaging effect of it. And things may only get worse before they get better. The appointment of Ramaphosa’s close ally Enoch Godongwana to succeed Tito Mboweni felt like a shakeup but it is believed that the former Central Bank governor Mboweni was ready to leave the job. Mboweni’s exit has some parallel symbolism to the feelings of international investors (who have slowly exited the country). The path forward for the country will be fraught with struggling commodity production, weakened African financial markets, and a battered private sector plus a potential influx of foreigners from struggling neighboring countries. So it goes…the Rainbow Nation really needs the storm to stop and the rainbow to return.</p> <p class="has-medium-font-size"><strong>Brazil</strong></p> <p class="has-normal-font-size"><em>Maybe a presidential race in 2022 can spur some change…</em></p> <p>President Jair Bolsonaro is facing his biggest challenge as covid-19 endures in South America’s biggest country. The protests against masks and fights over lockdowns poorly mask (no pun intended) the increasing economic challenges in the country with federal social spending unable to solve for slow growth and lack of a pandemic solutions. The spending under the <em>auxilio emergencial</em> program, which provided monthly payments of R$600 to roughly 68 million Brazilians during the pandemic with single mothers receiving R$1,200, helped to win support initially during the covid-19 pandemic. The payments were later cut by 50% in September (with families receiving R$300). The smaller payments and lack of turnaround in the economy gradually weakens Bolsonaro’s political position as each day passes. The return of former Brazilian President Luiz Inacio Lula da Silva only frustrates the situation as economic angst and anxiety will be fueled by the conspicuous emerging political race between Lula and Bolsonaro. A presidential race usually spurs the necessary change with the current president attempting to demonstrate results and the opponent emphasizing the shortcoming in the current system…in Brazil, there is little indication that Bolsonaro will make drastic policy changes simply because Lula is attempting to reclaim the presidency. Thus, Brazil may remain in the social and economic doldrums in the short term with more covid-19 deaths (only second to the United States) and stunted economic growth.</p> <p class="has-medium-font-size"><strong>Thailand</strong></p> <p class="has-normal-font-size"><em>Covid-19 may be emboldening protesters…</em></p> <p>Thailand is symbolic of the challenges with covid-19 in Asia. Things were under control and then the country attempted to open the borders through controlled tourist zones. But the Delta variant is spreading amongst a population that is less than 10% vaccinated (with two doses) and dependent on the return of tourists. Accelerating vaccinations seems all but impossible at this stage, at least in regards to stemming the current onslaught of health (and economic) pain. The Thai government will continue to support debt relief and focus on all attempts to stimulate local and foreign consumption. But with Asia facing an uphill battle as a region, the country cannot expect much external support (as other Asian countries attend to their internal covid-19 problems) and will mainly hope non-Thais are willing to bear the risk in visiting the country. The latest data suggest that strategy is not working with GDP growth expected to be 0.7%-1.2% this year, which is an approximate 50% reduction from the 1.5%-2.5% predicted in May by the National Economic and Social Development Council. The council blamed the drop in expected GDP growth on the “flareup of the [covid-19] outbreak in April” with no insurance to the public that this would not continue to be a problem. The recent Thai protests are ultimately the epitome of this deteriorating situation with local Thais basically saying they have lost faith in the system, which includes both the monarchy and non-monarchy leadership for Thais.</p> <p class="has-medium-font-size"><strong>India</strong></p> <p class="has-normal-font-size"><em>The lack of protests indicates a significant amount of quiet suffering…</em></p> <p>Covid-19 has been detrimental to the social and economic fabric of India. Yet Prime Minister Narendra Modi has impressively avoided the protests witnessed in the other countries on the list. The country has recorded more than 431,000 cases out of the nearly 30 million people who have contracted the virus. While the country of 1.36 billion people has reported fewer deaths than Brazil and the United States, numerous experts (as well as Modi critics) continue to argue that the positive case numbers and fatality numbers are underreported with data collection quite underwhelming outside a few major cities. The stories from locals suggest that there is some truth to underreporting. That aside, if the physical destruction of life was not too much, the underwhelming economic turnaround leaves many families unable to care for the sick and the healthy. At the start of the year, IMF expected the country to grow by more than 12% this year, but recently reduced that estimation to 9.5%. Early consumer spending data and a spike in the Delta variant in the country suggests that this number may decrease again. In a country where many individuals live on daily wages, these slowdowns (and shutdowns) ultimately reverse Indian gains against poverty, according to the World Bank, with the effects on human life lingering for a generation. Prime Minister Modi recently renewed his pledge to spend more than $1 trillion on infrastructure to boost the economy and create jobs. The pledge is an effort to allay concerns that covid-19 is becoming the perfect storm of a health and economic crisis for India, particularly amongst the most vulnerable in the population. Sadly, if the current rate of economic pain persists, the gains of the 2010s against poverty may be wiped out by the pandemic despite the country having an ability to internally produce the vaccine.</p> <hr class="wp-block-separator"/> <p></p> ]]></content:encoded> </item> <item> <title>The Return of Lula, Brazil’s Economic Volatility, and Opportunistic Investment</title> <link>https://kurtdavisjr.com/the-return-of-lula-brazils-economic-volatility-and-opportunistic-investment-elections-2022-bolsonaro/?utm_source=rss&utm_medium=rss&utm_campaign=the-return-of-lula-brazils-economic-volatility-and-opportunistic-investment-elections-2022-bolsonaro</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Mon, 14 Jun 2021 18:24:38 +0000</pubDate> <category><![CDATA[Latin America]]></category> <category><![CDATA[2022 Elections]]></category> <category><![CDATA[Brazil]]></category> <category><![CDATA[Brazil Elections]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Distressed Investing]]></category> <category><![CDATA[Jair Bolsonaro]]></category> <category><![CDATA[Luiz Inacio Lula da Silva]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=457</guid> <description><![CDATA[Brazil is full of opportunities…if you ignore the populist rhetoric that will accompany the October 2022 elections. ]]></description> <content:encoded><![CDATA[ <div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="600" height="375" src="https://kurtdavisjr.com/wp-content/uploads/2021/06/lula-back-in-the-game.png" alt="" class="wp-image-458" srcset="https://kurtdavisjr.com/wp-content/uploads/2021/06/lula-back-in-the-game.png 600w, https://kurtdavisjr.com/wp-content/uploads/2021/06/lula-back-in-the-game-300x188.png 300w" sizes="auto, (max-width: 600px) 100vw, 600px" /><figcaption>(Photo Credit: Paresh Nath, Cagle Cartoons)</figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading"><strong><em><em><em><em><em><em><em>Brazil is full of opportunities…if you ignore the populist rhetoric that will accompany the October 2022 elections</em></em></em></em></em></em></em></strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>Mark the calendar for 2 October 2022. Brazilians are already focusing on the date because general elections to elect the President, Vice President, and National Congress will take place then.</p> <p>The date could either mark the return of former Brazilian President Luiz Inacio Lula da Silva or a validation of Brazil’s shift away from his leftist politics under current President Jair Bolsonaro.</p> <p>The return of Lula to the political scene is both surprising and expected after a Supreme Court judge annulled Lula’s past convictions and restored his right to run for office – a surprise because it was these convictions that prevented Lula’s return in the last election and expected because Lula has been running for president (as a candidate or with a proxy) since 1989 with his own victories in 2002 and 2006.</p> <p class="has-medium-font-size"><strong>Why Does This Matter to Investors?</strong></p> <p>Brazil is in economic (and social) turmoil today. The Brazilian economy contracted more than 4% in 2020. And nearly half-million Brazilians have lost their lives to covid-19.</p> <p>Lula’s political resurrection all but ensures both a polarizing presidential campaign cycle and an elevation of the populist rhetoric and policy agenda. Local economists and businesses are already preparing for Bolsonaro to abandon his conservative campaign pledges slowly and strategically, in particular his economic promises, in order to win more votes.</p> <p>When the news of Lula’s political return was revealed back in March, the Brazilian real plummeted to within 10 cents of its all-time low against the dollar, signifying the market’s concern over a potential shift in policy. The currency sadly remains one of the world’s worst-performing currency, only trailing the Libyan dinar and the Sudanese pound.</p> <p>Further fueling the anticipation for a populist political battle, a survey by pollster Datafolha published last month showed Lula handily defeating Bolsonaro with 55% in a run-off vote if the 2022 elections were held today.</p> <p class="has-normal-font-size"><em>Volatility Creates Opportunity…</em></p> <p>The takeaway of the story is Brazilians can prepare for more volatility in the near term (likely right until election day). Do not be surprised if the unwinding of fiscal support from last year is slowed or replaced with similar support but dressed in different clothes. Though inflation is likely to be the counterbalance to any ambitious populist agenda, the precarious (and potentially flippant) nature of policymaking in the short term will remain.</p> <p>Following the election of any candidate, Brazil will have to outline a robust path towards fiscal sanity, including clear guidelines for fiscal spending (including a debt ceiling) and the conditions for the gradual expiry of temporary fiscal measures. An improved covid-19 outlook in the country (<em>it has to happen despite all the leadership blunders</em>) and strong commodity markets should translate into the restoration of fiscal credibility for the country. Despite the contentious politics, the government has passed a covid-19 emergency package twice and the pro-reform Minister of Economy Paulo Guedes continues to push rather rational orthodox macroeconomic policies (despite having his suite of objectors and naysayers).</p> <p>The underlying factors of the Brazilian economy remain strong. The central bank forecasts 3.6% GDP growth for 2021 while Minister Guedes suggests 4% is possible. A lack of lockdowns is underwriting those numbers. And, although many have died during the pandemic due to the lack of lockdowns, it is not clear more than a year later that those lockdowns could have necessarily stopped the deaths (India’s situation demonstrates the challenges of timing the right lockdown measures).</p> <p>The volatility in the system is creating investment opportunities with asset prices still low. For example, real estate prices remain distressed with commercial real estate prices in Sao Paulo rising less than 1% (according to analysts) compared to inflation north of 5% as the timing for the return of in-office work and international business remains uncertain. Rents are low today, which is bad for yield, but these opportunities are pure valuation plays which involve taking a view on Brazil’s natural ability to survive and revive. The currency devaluation also underwrites the upside for real estate (and many other sectors) with a square meter costing more than 50% less at $1300 to $1400 today compared to $3000 or so in 2014.</p> <p>Investors should be prepared to ride the upsurge of news and polarizing rhetoric. But after the 2022 election and the acknowledgement of a winner, Brazil’s economy and policy will normalize. There are concerns with Brazil’s large public-debt up from around 70% in 2019 to 90%+ today. But externally, the country’s balance sheet remains strong, with large reserves and low public external debt.</p> <p>Accordingly, the sovereign and sovereign-like institutions (i.e., infrastructure-related sectors) are basically seeking funding to bridge to a post-2022 election and a post-covid world and are willing to pay a healthy price for that funding (see Oi S.A. in Brazil). Also helping investors is the reality that downside risks and sovereign risks are generally already priced into the system. </p> <p>A Lula win or Bolsonaro re-election will not change the ultimate reality: the next Brazilian president will have to steer this economic ship to safe grounds. That reality creates opportunity for the right capital ready to take the risk today and ride that wave to stable ground.</p> <p>.</p> <hr class="wp-block-separator"/> <p></p> ]]></content:encoded> </item> <item> <title>Coronavirus is Opportunity (for Investors) in Latin America</title> <link>https://kurtdavisjr.com/coronavirus-is-opportunity-for-investors-in-latin-america-brazil-mexico-argentina/?utm_source=rss&utm_medium=rss&utm_campaign=coronavirus-is-opportunity-for-investors-in-latin-america-brazil-mexico-argentina</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Tue, 16 Mar 2021 13:00:44 +0000</pubDate> <category><![CDATA[Latin America]]></category> <category><![CDATA[Argentina]]></category> <category><![CDATA[Brazil]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Distressed Investing]]></category> <category><![CDATA[Mexico]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=438</guid> <description><![CDATA[Latin America remains significantly impacted by the pandemic with three of its largest economies—Brazil, Mexico, and Argentina—among the world’s biggest covid-19 hotspots. And, as these country’s leaders struggle to stave off economic and health catastrophe one after another, (distressed) investors will find additional opportunity to allocate capital...]]></description> <content:encoded><![CDATA[ <div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="620" height="372" src="https://kurtdavisjr.com/wp-content/uploads/2021/03/Covid-19-Latin-America.jpg" alt="" class="wp-image-440" srcset="https://kurtdavisjr.com/wp-content/uploads/2021/03/Covid-19-Latin-America.jpg 620w, https://kurtdavisjr.com/wp-content/uploads/2021/03/Covid-19-Latin-America-300x180.jpg 300w" sizes="auto, (max-width: 620px) 100vw, 620px" /><figcaption>(Photo Credit: Shutterstock.com)</figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading"><strong><em><em><em><em><em><em>A Volatile Mix of Opportunity and Risk</em></em>..</em></em></em></em></strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>First, the world was crashing. Then it was the world recovering with stimulus cash galore.</p> <p>The unimagined market dislocation during the initial months of covid-19 in 2020 was a boon to the distressed asset class. Companies and governments both borrowed at unprecedented levels to combat demand slumps and fight off complete collapse. Everyone was writing the comparison stories to 2008/2009.</p> <p>Then boom…credit spreads decreased, and equity markets rocketed back. By the end of 2020, it was clear that many distressed shops thought they had missed the boat with some shops also closing doors…if you missed that opportunity, then you did not deserve to be in the business.</p> <p>The storyline can sound factitious at some level. The decline was not as long-lasting as many economists predicted. And the rebound was too quick to match the horror stories permeating global news. To be fair, many individuals remain unemployed and countries have not seen job numbers return to pre-covid levels.</p> <p>Regardless, distressed investing should not be solely predicated on allocating capital to ride the synchronized dislocation and recovery in the global market. Furthermore, some markets continue to face dislocation and the covid-19 headwinds.</p> <p>Latin America, in particular, remains significantly impacted by the pandemic with three of its largest economies—Brazil, Mexico, and Argentina—among the world’s biggest covid-19 hotspots. And, as these country’s leaders struggle to stave off economic and health catastrophe one after another, (distressed) investors will find additional opportunity to allocate capital.</p> <p class="has-medium-font-size"><strong>Brazil, Mexico…and Argentina?</strong></p> <p class="has-normal-font-size"><em>Brazil</em></p> <p>Brazil has long been on the radar of investors. Sovereign investors, principally those close to the government, liked the Lula da Silva and Dilma Rousseff years while some private investors were excited for the administration of President Jair Bolsonaro. Now, with Lula largely cleared to run in the 2022 general election, 2021 will be a critical year with fixing the “covid-19 situation” in the country as priority #1.</p> <p>All the major sectors—retail, aviation, and hospitality—look in the doldrums today but will improve over time. The country’s good economic fundamentals will underwrite a strong recovery when covid-19 is under control. An impending political contest like no other in 2022 should ensure some progress on shortening that timeline to controlling the virus. Then investors should remember that Brazil is one of the world’s largest economies with a big population and its sizable consumption appetite. The bigger question is valuation in Brazil where asset prices are not exactly low or in the vicinity where some investors would expect them based on today’s demand.</p> <p class="has-normal-font-size"><em>Mexico</em></p> <p>Mexico reached record levels for capital outflow in 2020 mainly due to the pandemic. Most emerging markets faced a similar outflow, but Mexico also saw its situation exacerbated by its antagonistic relationship with the U.S. government and former President Donald Trump. This reality is underpinned by the recovery in capital flows after the U.S. presidential election, in which President Joe Biden won, with 145.2 billion pesos ($7.28 billion) entering the sovereign bond market in November and December, according to the Bank of Mexico.</p> <p>The Mexican economy will provide attractive opportunities with the Mexican manufacturing sector starved for both cash and consolidation. Most sector data show that suppliers and smaller-scale producers suffered during the pandemic across industries. Capital intensive industries, such as oil & gas, will remain vulnerable to commodity price movements despite all the current excitement with rising commodity prices. State-owned Pemex is a perfect example of a company that may be helped by higher oil prices but still cannot escape its bloated balance sheet. These opportunities may become plentiful in Mexico in 2021as covid-19 continues to batter the country.</p> <p class="has-normal-font-size"><em>And Argentina?</em></p> <p>The Argentine bonds, which were restructured last year, continue to fall with some bonds pricing less than 30 cents on the dollar. Bond traders and investors both express concerns that President Alberto Fernández may balk at key economic reforms originally supported as part of the sovereign debt restructuring process, especially with mid-term elections in October.</p> <p>The Fernández administration is very keen to avoid spending cuts, most notably to social programs, before that election. Thus, investors buying Argentine sovereign debt today will have to take a view on the current leadership’s ability to curb spending post-October elections and / or whether the country will head for yet another restructuring in the near-term. Corporate bond investors will make a similar assessment albeit with an additional evaluation of the relative beta of corporate’s ability to pay to the country’s ability to perform. Plus, there is this entire IMF discussion with Argentina that seems on-track then off-track depending on the week.</p> <p class="has-medium-font-size"><strong>Hidden Risks and Fool’s Gold</strong></p> <p>The learning curve is short for many investors… foreign investors have long dabbled in these countries. Also, the calamity in the markets continue to help capital allocators investing in foreign currencies—most obvious being the U.S. dollar—though this can be negated by companies collecting revenues in dollars in these countries or the growing inflation concerns with the U.S. dollar.</p> <p>That said, there are already a lot of eyes on Latin America. Capital inflows ticked up at the end of 2020 and asset and debt prices have accordingly priced up in recent months. Be careful not to follow a herd mentality into the region as the risks are plenty from economic to health to political. </p> <p>A third wave of covid-19 is always possible with limited vaccine in the short term, which could suggest there may be another dip before the uptick. Still, the lack of clarity on the pandemic’s trajectory in the region due to the strategic unknown in combating the virus should not equate to sitting on your hands. The key is to avoid the fool’s gold by constantly re-evaluating your risk assessment because taking advantage of the dislocation in Latin America by riding the synchronized downturn then uptick in recovery is not a strategy (despite its success in 2020 in other regions) as the markets are likely to be somewhat volatile with abrupt disruptions (…like the politics in the region).</p> <hr class="wp-block-separator"/> ]]></content:encoded> </item> <item> <title>Top 10 Economies to Watch in 2021</title> <link>https://kurtdavisjr.com/top-10-economies-to-watch-in-2021-brazil-uae-thailand-portugal-turkey-japan-italy-peru-ghana-malaysia/?utm_source=rss&utm_medium=rss&utm_campaign=top-10-economies-to-watch-in-2021-brazil-uae-thailand-portugal-turkey-japan-italy-peru-ghana-malaysia</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Mon, 21 Dec 2020 10:56:26 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[Europe]]></category> <category><![CDATA[Latin America]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[2021]]></category> <category><![CDATA[Brazil]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Economic Recovery]]></category> <category><![CDATA[Ghana]]></category> <category><![CDATA[Italy]]></category> <category><![CDATA[Jair Bolsonaro]]></category> <category><![CDATA[Japan]]></category> <category><![CDATA[Malaysia]]></category> <category><![CDATA[Marcelo Rebelo de Sousa]]></category> <category><![CDATA[Nana Akufo-Addo]]></category> <category><![CDATA[Peru]]></category> <category><![CDATA[Portugal]]></category> <category><![CDATA[Recep Tayyip Erdogan]]></category> <category><![CDATA[Shinzo Abe]]></category> <category><![CDATA[Thailand]]></category> <category><![CDATA[Turkey]]></category> <category><![CDATA[UAE]]></category> <category><![CDATA[Yoshihide Suga]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=387</guid> <description><![CDATA[The distribution of vaccines is changing the economic outlook in 2021 with most politicians and investors forecasting a continued recovery. Yet the political and economic risks that preceded the covid-19 pandemic remain alongside the lockdown measures necessary to combat the virus. The year will be turbulent for some countries as public confidence and investor sentiment vacillates with optimism and skepticism on vaccine acceptance rates and economic output numbers. Several countries are likely to be bellwethers for the markets, or at least, provide some directional insight on the global economy’s recovery...]]></description> <content:encoded><![CDATA[ <div class="wp-block-image is-style-default"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="288" height="221" src="https://kurtdavisjr.com/wp-content/uploads/2020/12/OECD-Growth.jpg" alt="" class="wp-image-388"/><figcaption> </figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading"><strong><em><em><em><em><em><em><em>The bellwether economies for 2021…</em></em></em></em></em></em></em></strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>The distribution of vaccines is changing the economic outlook in 2021 with most politicians and investors forecasting a continued recovery. Yet the political and economic risks that preceded the covid-19 pandemic remain alongside the lockdown measures necessary to combat the virus.</p> <p>The year will be turbulent for some countries as public confidence and investor sentiment vacillates with optimism and skepticism on vaccine acceptance rates and economic output numbers. Several countries are likely to be bellwethers for the markets, or at least, provide some directional insight on the global economy’s recovery.</p> <p class="has-medium-font-size"><strong>Brazil</strong></p> <p class="has-normal-font-size"><em>Is this a pro-market or socialist administration…let’s see what happens in 2021</em></p> <p>Brazilians may be looking to 2021 as much as anyone. The covid-19 pandemic has killed more than 185,000 Brazilians, which is more than 11% of the total deaths worldwide. President Jair Bolsonaro was vehemently attacked by his critics for not mandating masks and not taking the virus seriously enough. Amid the criticism, Bolsonaro—the right wing, pro market “Trump of the Tropics—won the support of Brazilians with the biggest welfare program in Brazil’s history.</p> <p>Despite his economy minister, Paulo Guedes, originally proposing to spend no more than R$5 billion ($1 billion), which is about 0.2% of the budget, to combat the pandemic, the reality of everyday Brazilian life changed the direction of this conservative government. The Bolsonaro administration ultimately decided, as part of the <em>auxilio emergencial</em> program, to provide monthly payments of R$600 to roughly 68 million Brazilians during the pandemic with single mothers receiving roughly R$1,200. The payments were cut by 50% in September (with families receiving R$300) but extended through the end of the year. This fiscal response, including the job-retention schemes, amount to about 8% of GDP. The federal spending is winning supporters in the streets. That said, it is also worrying many investors who see a country with a public debt quickly approaching 100% of GDP.</p> <p>Furthermore, the Bolsonaro administration is seemingly walking into 2021 in an ideological wilderness of some sort with big economic challenges and few options for solutions. The administration could reduce welfare spending to pre-pandemic levels and retake its conservative, pro-market stance, but the Brazilian economy remains extremely fragile. Unemployment is 14.6%, which is a record for the country, with incomes not recovering anytime soon, and GDP is tracking for a 5% decline in 2020. The administration could spend more, but Congress will have to raise the constitutional ceiling on spending…that would normally go against the ideology of this administration but there is still a pandemic. Bolsonaro could use a second wave of the covid-19 pandemic to advocate for major spending and economic changes, building off momentum from his pension reform success. Global vaccine distribution and uptake by the public, however, may dictate the timeframe for a bold move as the economic parameters underpinning any Bolsonaro decision will be constantly shifting. It almost seems too early for rumors to be floating around on the Bolsonaro administration’s desire to raise interest rates in a post-pandemic world…then again that may be the necessary rumor to keep investors enticed by the country.</p> <p class="has-medium-font-size"><strong>United Arab Emirates (UAE)</strong></p> <p class="has-normal-font-size"><em>Will the UAE demonstrate its resilience again?</em></p> <p>The UAE commenced 2020 with threats of attacks from Iran following the U.S.’s assassination of Iranian General Qasem Soleimani and is now ending the year with formal relations with Israel and crowded beaches (largely consisting of Europeans escaping the lockdown measures in Europe). That summary, on the face of it, sounds positive but massages the reality of the economic challenges. The country will see its economy contract 6.6% in 2021, according to the International Monetary Fund (IMF), and is expected to grow slightly above 1% in 2021. The IMF argues that low oil prices, geopolitical issues, and covid-19 lockdown measures will underpin low growth for the UAE and the larger GCC region. The reality of the IMF storyline is there is a new oil price norm, which the region is adjusting to, and the geopolitical issues are overstated, excluding issues with Iran. That said, the covid-19 lockdown measures in the region and across the globe will undercut an economic rebound for the UAE. For example, Dubai, which is roughly 90% expat, and functions as a financial hub for the region, needs international travelers and businesspersons to start boarding flights and passing through Dubai. The sight of Europeans on the beach during the Christmas holiday gives hope to (but does not substantiate) that vision.</p> <p>The UAE will benefit from an inflow of Israeli capital and ideally tourism. Yet the country will suffer from the exodus of expats, estimated at roughly 10-12% of the population since its peak in 2020. Can it attract remote workers (per latest advertisements across European tv)? Can it make potential tourists find comfort in the country’s rather superb testing capabilities and the insurance offerings by Emirates Airlines? The various questions are hard to answer today with so much unknown about the global market. The UAE leadership nevertheless will not sit idle and are actively employing different strategies. Still the realities of the country’s economic system suggest that absence global travel and business or, at least, regional travel and business, the UAE could be in for a long 2021. Scheduled for October 2021 (after being postponed this year), Expo 2021—which involves companies and institutions across the globe coming to Dubai to showcase their products, services, and related projects—is a bet on a revived and traveling world. That said, if the date moves again in the first half of 2021, consider that a bellwether for the tough times to come. Skeptics would say the empty restaurants and bars in the Dubai International Financial Center (DIFC) and across the country already indicate 2021 will be tough. But the UAE track record demonstrates that it is too early to write-off this rather resilient country.</p> <p class="has-medium-font-size"><strong>Thailand</strong></p> <p class="has-normal-font-size"><em>When will tourism return?</em></p> <p>The Thai economy suffered during the early days of covid-19 as lockdowns decimated exports and tourism for southeast Asia’s second largest economy (after Indonesia). GDP crashed 12.1% in the second quarter, which was the highest contraction since the second quarter of 1998 when the country registered a 12.5% decline due to the Asian financial crisis. The 6.5% growth in the third quarter of 2020 accordingly provides a glimpse of hope. It is important to note that the growth comes without foreign tourists. It is the increasing domestic tourism and slight revival in exports driving these numbers.</p> <p>Similar to the UAE, the country will be closely watching the rollout of the vaccine. Widespread distribution of the vaccines will take time and does not necessarily guarantee a return of public confidence in traveling. The optimistic case for Thailand may be a return of foreign tourism by the second half of 2021…in this scenario Thailand potentially attracts one-fourth of the tourists seen in 2019. Without an inflow of foreign spending, the country will be dependent on export growth to fill the gap. Exports are unlikely to rebound to 2019 numbers before the fourth quarter of 2021…it will most likely take longer. Thus, the Thai government will struggle to underwrite ongoing debt moratoriums through June 2021 and other measures to stimulate consumption (e.g., welfare allowances, tax rebates, etc.) if tourism has its issues. Political observers and investors will also have to be cautious if political unrest and protests remain a concern.</p> <p class="has-medium-font-size"><strong>Portugal</strong></p> <p class="has-normal-font-size"><em>Overcoming low tourism in 2021 would be hard…</em></p> <p>Portugal partially fell under the radar this year. The country escaped the pernicious impact of the covid-19 crisis seen in other EU countries, in particular Italy and Spain. The pandemic and the associated lockdown measures, however, devastated the economy with a 18% crash in the first half of 2020 and an estimated 8% to 9% contraction for the entire year. The Bank of Portugal is forecasting a 5.4% growth in 2021, compared to 2.2% in 2019. The fragile nature of the EU economy and the ongoing reality of a pandemic suggests that a big economic recovery in 2021 may be hard for Portugal. The Portuguese economy is already more vulnerable than others in today’s partially lockdown world. The country has a significant tourism sector, which suffers with the current lack of travel, and depends significantly on exports, which also have not performed well this year. The country’s economy also relies heavily on family owned businesses that have struggled (and ultimately closed) across the globe amid the pandemic. Nothing suggests Portuguese family owned business will perform better than the average thus the impact on 2021 may be greater than forecasted with more than expected businesses already closed and new ones not exactly taking their spot.</p> <p>Further complicating the Portuguese story is the 2021 election. To be fair, Portugal’s incumbent President Marcelo Rebelo de Sousa, supported by Christian-democrats Centro Democrático e Social (CDS) and the centre-right Partido Social-Democrata (PSD), should win. But elections, in the midst of pandemics and economic recessions, always add an extra dynamic to the situation. That said, the election is in January thus the hoopla should be over early and the country will quickly turn to reviving the economy…though no one can be too sure how Portugal does this without a global rebound in tourism and consumption of Portuguese products.</p> <p class="has-medium-font-size"><strong>Japan</strong><strong></strong></p> <p class="has-normal-font-size"><em>Covid-19, the Olympics, and the changing of the guard in Japanese politics…2021 will be interesting</em></p> <p>Japan has had a volatile year…though many observers may not appreciate that when Japan is viewed against other markets. First, the country’s longest serving prime minister, Shinzo Abe, announced his second resignation in September 2020, citing health concerns related to his ulcerative colitis. Abe established 8 years of political stability with landslide victories for the Liberal Democratic Party (LDP) in 2014 and 2017. Recently elected Prime Minister Yoshihide Suga is not guaranteed the same support and political backing from those within his party let alone those outside his party. Politicians and businesspersons have long found comfort in the consistency of Japanese politics and its leader thus the change naturally creates some worry amongst the Japanese public.</p> <p>Secondly, Japan has generally managed the covid-19 pandemic like a superstar with less than 2,800 deaths (for context, the United States is currently recording that death toll on a daily basis). The luster, however, is dimming with the Japanese public as the country recorded its highest number of covid-19 cases last week. Critics have panned Suga for poor leadership and his “Go to Travel” campaign, which he quickly suspended. Poll numbers suggest his approval numbers are in the 40s, compared to mid-60s when he took office. Suga is surely watching these numbers and will feel pressure to respond to them with the LDP party presidential race to take place before the end of September 2021, which will be more competitive than the quick September 2020 party race. He needs to win the party leadership race to stay prime minister.</p> <p>Suga is reportedly debating more localized lockdowns to curb the spread of the virus but also weighing this against jumpstarting the economy. The government is forecasting 4.0% GDP growth for the country, which is higher than the 3.0% to 3.5% coming from local economists. The growth numbers should be buoyed by the Olympic Games, as the International Olympic Committee has officially ruled out postponing the games for a second time. Still, it is not clear if the global public will attend the Olympics. The absence of tourists would be detrimental to economic growth numbers. Japan should have a view of attendance by early spring. If the country starts to recalibrate attendance numbers and economic growth numbers, then politicians and investors will likely have to take the same approach.</p> <p class="has-medium-font-size"><strong>Turkey</strong></p> <p class="has-normal-font-size"><em>The country that always survives…</em></p> <p>It has been a turbulent year for Turkey (per the usual in some investor’s eyes). The country’s politics naturally find their way into most global discussions. Turkey has long backed the Libyan interim Government of National Accord, led by Prime Minister Fayez al-Sarraj, as well as allied with the Syrian National Army in Syria. Turkey found its way into the Azerbaijan conflict with Armenia. And now the country faces sanctions from the U.S. over the purchase of the S-400 missile defense system. Despite the political storylines, the Turkish economy is what consumes political analysts and investors.</p> <p>The Turkish lira has struggled this year, losing 45% of its dollar value…only the Argentinian peso has had a tougher year. The lira unexpectedly found some reprieve with the departure of President Recep Tayyip Erdogan’s son-in-law Berat Albayrak, following the sacking of Murat Uysal as the central bank governor and the installation of Naci Agbal as his replacement. Lutfi Elvan, a former deputy prime minister, has replaced Albayrak as the Minister of Finance. Markets will be closely watching to see if Uysal will be supplying the “bitter pills” to the Turkish economy, as described by President Erdogan. So far, Agbal appears to be walking lockstep with Uysal with market friendly comments on the currency and the economy though investors will likely want more than words to completely buy into the ‘new’ Turkey.</p> <p>Investors will also be monitoring the country’s foreign currency reserves that have been decimated this year. However, it is partially a catch-22 situation where the country needs to attract more foreign capital, i.e. the country needs to woo the same foreign capital currently watching from the sidelines to see if the foreign currency reserve levels increase. Uysal and Agbal will also have to convince Turkish citizens to trust the lira and use the currency. That may be the tougher than convincing foreign investors to come back to the party.</p> <p class="has-medium-font-size"><strong>Italy</strong></p> <p class="has-normal-font-size"><em>Been here before…is that good or bad?</em></p> <p>Italian Prime Minister Giuseppe Conte recently reiterated a focus on expansionary policy for the Italian economy: “While preserving the sustainability of debt, the approach delineated in the 2021 budget will remain strongly expansionary […] a faster reduction of the budget deficit right now would risk jeopardizing Italy’s economic recovery.” Italian public debt is already projected to reach approximately 160% of GDP by year’s end, compared to 135% of GDP last year (only Greece will have a higher debt to GDP ratio in the EU). Despite the debt situation, Conte is prepared to double-down on spending to strengthen the economy, which is expected to contract roughly 9% this year The estimated 6.1% growth in 2021 remains a precarious projection subject to Italy (and the rest of the EU) returning to a sense of day-to-day normalcy. That is hard considering the localized lockdowns and timeframe associated with vaccine distribution across the region.</p> <p>Italy is expected to receive 196 billion euros in recovery funds from the EU, generally earmarked for a transition to a greener economy. It is not clear how this money will exactly plug holes and fill gaps when Conte is trying to re-underwrite the entire Italian economy. Maybe some spending on transport and digital infrastructure can be a quick boost to an ailing economy. That said, the greater focus should be on creating confidence and diversification in the Italian economy. This vision on fixing Italian economics has been the request of investors, lenders, and citizens for a long time yet the country consistently misses the target or outright resists certain demands. Thus, it is only appropriate that the market will be watching Italy with angst and a sense of opportunity.</p> <p class="has-medium-font-size"><strong>Peru</strong></p> <p class="has-normal-font-size"><em>Political and economic malaise must end at some point?</em></p> <p>Peru has had a lousy year…that honestly may be an understatement. Martín Vizcarra, Peruvian president since March 2018, was removed by Congress on November 9<sup>th</sup> for rather flimsy corruption charges. Protests in the streets followed and led to the new acting president, Manuel Merino, resigning less than a week after taking office. Most of his ministers would follow him out the door. Current President Francisco Sagasti is doing his best to maintain the peace (or, at least, calm) until the April 2021 presidential election. He has a hard road ahead of him for multiple reasons. First, the political tension and instability of Peru is not new and traces back to the 2016 election when Pedro Pablo Kuczynski defeated Keiko Fujimori, daughter of former President Alberto Fujimori—who was sentenced to 25 years in prison in 2007 for corruption and crimes against humanity—by the slimmest of margins with 50.1% of the vote. Kuczynski would resign in March 2018 but only after surviving an impeachment attempt in December 2017, pardoning Alberto Fujimori three days after the failed impeachment vote, and having allies, including his lawyer and Kenji Fujimori (brother of Keiko), caught on video attempting to buy a vote against impeachment from one official. Peruvian politics sadly are too clouded by distrust, questions of legitimacy, and constant impeachment scandals. Sagasti will have to walk a tightrope to keep the political boat afloat until April.</p> <p>The second challenge for Sagasti is the economic malaise across the country. The IMF is projecting the economy to contract 13.9% this year and grow 7.3% in 2021. The decline is easier to believe than the expected rebound. The country is dependent on fuel exports and mining, including copper and gold. External demand and prices will recover in 2021 but probably not to a level necessary to fund Peruvian stimulus spending measures. Agricultural exports will also lag in 2021. Thus, Sagasti or his potential successor are more likely to face a struggling economy with significantly less than normal to spend on welfare programs. The former Finance Minister Maria Antonieta Alva, who resigned in November, claimed that the government’s spending measures in the third quarter prevented the economy from crashing more than 20% this year. Peruvian officials, at the end of the day, will have to find a way to work together to carve out spending for welfare programs and business support in 2021…if they wait for the spoils of a global rebound to trickle down to Peru, every day Peruvians will lose and the country will look more like a distressed sovereign in 2021 more than a rebound candidate.</p> <p class="has-medium-font-size"><strong>Ghana</strong></p> <p class="has-normal-font-size"><em>President Nana Akufo-Addo may have won re-election this year but is now on trial for his economic policy…</em></p> <p>President Nana Akufo-Addo of the New Patriotic Party (NPP) won re-election on December 7<sup>th</sup> with more than 51% of the vote, defeating his predecessor John Dramani Mahama of the National Democratic Congress (NDC). His 2020 campaign built on the 2016 campaign vision: “Ghana Beyond Aid”. Back in 2017, in response to a local journalist’s question and to the shock of many observers and the visiting French President Emmanuel Macron, Akufo-Addo stated, “we can no longer continue to make policy for ourselves, in our country, in our region, in our continent on the basis of whatever support that the western world or France, or the European Union can give us.” This Akufo-Addo manifesto to end African dependence on foreign aid and the West, however, will now face its ultimate test.</p> <p>As stated in the 2020 Manifesto, the Akufo-Addo administration has made “significant progress in restoring economic stability, improved macroeconomic conditions that affect the lives of Ghanaians and the successes of businesses” and was “on schedule to maintaining our momentum for progress before the Coronavirus pandemic’s (COVID-19) major disruptions in every aspect of our national life”. Many African countries, including Ghana, have generally dodged the damage and carnage previously expected when covid-19 hit the continent. Yet, they will still encounter an economic environment that will ultimately culminate in a 1.6% contraction of the sub-Saharan African economy in 2020, according to the IMF.</p> <p>Furthermore, while Ghana may avoid economic contraction this year with about 1% to 2% growth, it will require significant investment to escape the potential economic traps of 2021. The economic waivers on utilities have hurt state-owned power companies and drained the government’s coffers alongside the spending on free meals, employment support and a national election. Once the end of the year numbers are released, Akufo Addo will likely have to take a view on whether to concede to increasing external financial support to fund infrastructure investment and support local businesses. That said, it is not that political question that puts him at greatest risk…rather, it is may be the question of how quick oil prices and other commodity prices rebound, both of which depend on the global economy regaining steam. As if there is not already enough pressure on Akufo-Addo, investors will probably scrutinize and over-examine Ghana’s performance for some insight into Africa’s recovery in 2021.</p> <p class="has-medium-font-size"><strong>Malaysia</strong></p> <p class="has-normal-font-size"><em>How agile and diversified is the Malaysian economy?</em></p> <p>The economic news coming out of Malaysia is positive with the IMF forecasting the country’s economy to grow by 7% in 2021 after 4.5% contraction in 2020. Exports were propped up in 2020 by the production of personal protective equipment (PPE) and electronics, which should continue in 2021. Malaysian officials expect a rebound for external demand of Malaysian products. They also remain committed to stimulus spending, as needed, with high confidence in their ability to direct spending to those sectors and manufacturing verticals least affected by social distancing and covid-19.</p> <p>The concern for Malaysia may be its national balance sheet and the money in its coffers. Revenue for the country is expected to fall to 15% of GDP. This decline in revenue collection will give rise to concern amongst officials and investors as the country’s debt approaches 60% of GDP. Prime Minister Muhyiddin Yassin also intends to spend to protect the poor and bolster healthcare amid this pandemic based on the recent budget. His critics will say this spending is putting Malaysia on an unsustainable path. Yet a lack of stimulus spending could crash the domestic economy thus Yassin, like many leaders, will be looking to a global recovery to underwrite his covid-19 spending outlook. The good thing for Yassin is that Malaysia’s economy is more agile and diversified to navigate the more probable slow start to the first half of 2021. If Malaysia struggles, then investors can expect many other economies to be in trouble.</p> <hr class="wp-block-separator"/> ]]></content:encoded> </item> <item> <title>Joe Biden and South America: What to Expect in Key Countries?</title> <link>https://kurtdavisjr.com/joe-biden-and-south-america-what-to-expect-in-certain-key-countries/?utm_source=rss&utm_medium=rss&utm_campaign=joe-biden-and-south-america-what-to-expect-in-certain-key-countries</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Mon, 23 Nov 2020 07:31:01 +0000</pubDate> <category><![CDATA[Latin America]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[Alberto Fernández]]></category> <category><![CDATA[America First]]></category> <category><![CDATA[Argentina]]></category> <category><![CDATA[Brazil]]></category> <category><![CDATA[Colombia]]></category> <category><![CDATA[Donald Trump]]></category> <category><![CDATA[Economic cooperation]]></category> <category><![CDATA[Iván Duque Márquez]]></category> <category><![CDATA[Jair Bolsonaro]]></category> <category><![CDATA[Joe Biden]]></category> <category><![CDATA[Nicolás Maduro]]></category> <category><![CDATA[South America]]></category> <category><![CDATA[U.S.]]></category> <category><![CDATA[Venezuela]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=354</guid> <description><![CDATA[A Biden administration should be expected to be a partner to Latin America due to Biden’s prior enthusiasm and interest in the region. That said, increased diplomatic communication and engagement does not necessarily suggest a major shift in policy...]]></description> <content:encoded><![CDATA[ <div class="wp-block-image is-style-default"><figure class="aligncenter size-large is-resized"><img loading="lazy" decoding="async" src="https://kurtdavisjr.com/wp-content/uploads/2020/11/South-America-map.jpg" alt="" class="wp-image-355" width="512" height="747" srcset="https://kurtdavisjr.com/wp-content/uploads/2020/11/South-America-map.jpg 592w, https://kurtdavisjr.com/wp-content/uploads/2020/11/South-America-map-205x300.jpg 205w" sizes="auto, (max-width: 512px) 100vw, 512px" /></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading" id="trade-commerce-and-economic-growth-why-discuss-other-things-at-least-for-now"><strong><em><em><em><em><em>Trade, commerce, and economic growth…why discuss other things, at least, for now?</em></em></em></em></em></strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>We are less than 60 days away from inauguration day for president-elect Joe Biden. Some South American politicians and activists, including Argentinian President Alberto Fernández and Uruguayan President Luis Lacalle Pou, seemingly cannot wait for that day. Others, such as Brazilian President Jair Bolsonaro, may be more hesitant. Both sides should be excited and cautious. </p> <p>A Biden administration should be expected to be a partner to South America due to Biden’s prior enthusiasm and interest in the region. Still, increased diplomatic communication and engagement does not necessarily suggest a major shift in policy. For example, President Donald Trump’s Growth in the Americas initiative, which promotes collaboration with private industry to fund infrastructure projects across Latin America and the Caribbean should continue. This conspicuous response to China’s expansion into the region will likely have support within a Biden administration and Congress, especially with countries such as Brazil, Argentina, Chile, and Ecuador in South America already signed onto the initiative. </p> <p>Similar economic initiatives in the region could be low-hanging fruit for continuity. Yet, the Biden administration will also have to confront the language of (or change the tone on) tariffs and economic threats when engaging South America as well as steer a pathway to engaging on democracy and the drug trade in the region. Democracy as a policy does not always go well…despots and autocrats can win elections too. And the drug trade is, as we all know, an incessantly ongoing touchy subject that has cost many real (and political) lives in its path. Thus, when looking at the key countries in the region (i.e., Brazil, Argentina Colombia, and Venezuela) for a Biden administration, plotting a strategy that is focused on economic growth and trade and layered with <em>capitalistic</em> market-friendly policies may be the winning mix for change in the region (and at home).</p> <p>A deeper exploration of U.S. engagement with these key countries largely suggests that there may be a change in tone but not exactly a change in policy thinking.</p> <p style="font-size:26px"><strong>Brazil</strong></p> <p class="has-medium-font-size"><em>The “Trump of Tropics” meets the anti-Trump president…</em></p> <p>It is not hard to imagine how the relationship between Joe Biden and Brazilian President Jair Bolsonaro could get off to a rocky start. Joe Biden has publicly criticized the environmental policies of Bolsonaro with poignant attacks on the response to the Amazon fires by the Bolsonaro administration. Biden went as far as telling the <em>Americas Quarterly</em> earlier this year that “If Brazil fails to be a responsible custodian of the Amazon rainforest, then my administration will rally the world to ensure the environment is protected.” It is expected that Biden will bring the U.S. back to the Paris climate deal thus it is easy to think he will not back down on protecting the Amazon. Also, during the campaign, he proposed a $20 billion global initiative to protect the Amazon to which Bolsonaro classically responded that he “does not accept bribes.” Trump, at the time, tweeted his support for Bolsonaro…it is best to assume the Amazon and climate change may not be the best topics for dinner conservation for Biden and Bolsonaro.</p> <p>A Biden administration may find more alignment with Bolsonaro by pursuing a stronger economic partnership. At some level, Trump elevated Brazil above Argentina when he voiced support for Brazil to join the Organisation for Economic Co-operation and Development (OECD) before Argentina. The Trump administration followed up the support with a limited trade agreement to facilitate commerce between the countries, strengthen regulatory practices and cooperation, and fight corruption. A Biden administration could fare well to follow the path that Trump’s administration was, in practice, outlining for engagement with Brazil. </p> <p>Brazil’s desire to join the OECD, which currently only has four Latin American members (i.e., Chile, Colombia, Costa Rica, ad Mexico) amongst its 38 member states, will force the country to adopt some economic reforms it would not pursue in ordinary due course. In other words, the desire to join the OECD can be similar to the desire of some European countries to join the European Union (EU)…some countries will truly change the laws and rules of its country to align with the greater body for admission. Though, the EU also shows how some countries adopt rules for admission then backtrack once admitted (but let us ignore that for now). Maybe walking down the OECD aisle with Brazil could be very beneficial for the United States. Brazil is the ninth largest economy in the world and the largest trading partner in South America for the U.S. Simply put, a Brazil with more market-friendly policies and regulation, increased governance, and more economic alignment with the U.S. surely cannot be a bad thing.</p> <p style="font-size:26px"><strong>Argentina</strong></p> <p class="has-medium-font-size"><em>The marriage of a leftist and a liberal…probably not</em></p> <p>Argentinian President Alberto Fernández took some relief in watching Biden win this presidential election. After Fernández won his election in October 2019, Trump was quick to warn Fernández that his administration should not be friendly with other leftist leaders in the region, including Venezuelan President Nicolás Maduro and former Bolivian President Evo Morales. Furthermore, Trump appointee Mauricio Claver-Carone, then-senior director for Western Hemisphere affairs at the National Security Council and now President of the Inter-American Development Bank (IDB), did not attend Fernández’s inauguration ceremony reportedly after learning that a Maduro official would be attending the inauguration. Biden has long critiqued the nomination of Claver-Carone to the IDB as being “ideological” more than anything else, especially as Claver-Carone is the first U.S. head of the bank. Normal tradition is to nominate a Latin American to the post. </p> <p>Be that as it may, Biden’s critique of the IDB nomination has little to do with Argentina…that reality underscores the probable storyline for a Biden administration with Argentina. There will be some dialogue between the countries to facilitate increased commerce and trade. That dialogue may include discussing the International Monetary Fund’s (IMF) $44 billion credit line to Argentina. Beyond that, Argentina will potentially be an afterthought with the Biden administration offering kind words and support but hesitant to get its hands dirty in the country’s politics and economics. Maybe there is a little discussion on clean energy and oil drilling but that will be a side show to the larger internal discussion in Argentina on Argentina fixing Argentina’s economy…i.e., the next couple years will not be about the U.S. or Biden when it comes to Argentinian politics.</p> <p style="font-size:26px"><strong>Colombia</strong></p> <p class="has-medium-font-size"><em>President Iván Duque Márquez is not President Juan Manuel Santos…time to make a new friend</em></p> <p>Colombia has long been a part of the Biden foreign policy or, better yet, the “keystone” of U.S. policy in Latin America, as Biden notably described it early this year in an op-ed. Cynics will say the words were patent pandering for Hispanic votes in a tight presidential election. But that critique would be unfair to Biden, who spent significant time as senator (and then-ranking member on the Senate Foreign Relations Committee) securing funding for Plan Colombia, an initiative which provided money to combat the drug trade in country.</p> <p>Biden also supported Colombia’s efforts to negotiate a peace deal under then-President Juan Manuel Santos with members of the Fuerzas Armadas Revolucionarias de Colombia (FARC). Now, the administration of President Iván Duque Márquez, if not actively undercutting the peace deal as suggested by some critics, is not precisely helping that peace deal to be successful. Duque has many Colombian politicians who oppose the peace deal and the concessions to the FARC…some of those politicians were happy to openly show support for Trump’s re-election campaign. Also, lockdowns, shutdowns and economic suffering are also a major hinderance to a successful peace process. All this makes for a lot of work on day 1 for a Biden administration.</p> <p>If Biden wants to be active in re-engaging Colombia on the peace deal and beyond, he may want to start with facilitating stronger commerce, trade, and economic growth and working with the country to fight covid-19. Helping everyday Colombian pockets is a better first step to peace than anything else in the country. If anything, Biden may want to sidestep discussions on coca cultivation and drugs in Colombia in the initial days…it will have to be a topic of discussion at some point. A Biden administration will not want to appear soft on the drug trade nor as aggressive as Trump, who favored resuming aerial eradication of coca crops. That is not an easy policy balance to maintain (nor broach in the early days) versus simply talking covid-19 and economic recovery…the latter of which proved successful, at least, in the U.S. election.</p> <p style="font-size:26px"><strong>Venezuela</strong></p> <p class="has-medium-font-size"><em>Time to negotiate for a transitional government?</em></p> <p>Venezuela is always part of the Latin American discussion. But observers may notice that there is not much to say here. Biden is not a socialist (as if that really needs to be stated) and will remain a formidable opposition to Venezuelan socialist President Nicolás Maduro. Still, it is not clear how a Biden administration will approach Venezuelan opposition politician Juan Guaido, who declared himself the country’s interim president in January 2019 with some international recognition but failed to push Maduro from power. Trump ardently backed Guaido and refused to concede anything to Maduro. A Biden administration, on the other hand, may try to negotiate a deal with Maduro if the opportunity presents itself. It is hard to say a potential deal is outright wrong, but many Venezuelans and outsiders will be skeptical of any deal for a transition of power in the country. Venezuelans also are not looking for symbolic political change. Regardless of political leanings, the paradoxical reality of an oil rich country with staggering inflation and poverty requires economic solutions to the everyday Venezuelan life. It is not clear that a transition government or split government can deliver that change…but then again, it is also clear that the current stalemate is essentially a Maduro presidency which is obviously not helping the situation. A true step to getting Maduro out of power would be the equivalent of winning the presidential lottery for approval ratings for the Biden administration. Misplaying your leverage and strengthening Maduro’s position, however, could be an outright catastrophe for a Biden administration. </p> <hr class="wp-block-separator"/> ]]></content:encoded> </item> <item> <title>Brazil and Covid-19: Don’t Necessarily Vote Against Bolsonaro</title> <link>https://kurtdavisjr.com/brazil-and-covid-19-dont-necessarily-vote-against-bolsonaro/?utm_source=rss&utm_medium=rss&utm_campaign=brazil-and-covid-19-dont-necessarily-vote-against-bolsonaro</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Wed, 15 Jul 2020 11:00:00 +0000</pubDate> <category><![CDATA[Latin America]]></category> <category><![CDATA[Bolsonaro]]></category> <category><![CDATA[Brazil]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Economy]]></category> <category><![CDATA[Finance]]></category> <guid isPermaLink="false">http://kurtdavisjr.com/?p=33</guid> <description><![CDATA[Understanding President Bolsonaro’s response to covid-19 within the greater scheme of Brazil’s economy...]]></description> <content:encoded><![CDATA[ <div class="wp-block-image"><figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="625" height="347" src="https://kurtdavisjr.com/wp-content/uploads/2020/07/brazil.jpeg" alt="" class="wp-image-34" srcset="https://kurtdavisjr.com/wp-content/uploads/2020/07/brazil.jpeg 625w, https://kurtdavisjr.com/wp-content/uploads/2020/07/brazil-300x167.jpeg 300w" sizes="auto, (max-width: 625px) 100vw, 625px" /><figcaption>A supporter of Brazil’s President Jair Bolsonaro wearing a protective mask at a protest against quarantine measures in Sao Paulo, Brazil. (Photo Credit: Reuters)</figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading" id="understanding-president-bolsonaro-s-response-to-covid-19-within-the-greater-scheme-of-brazil-s-economy"><strong>Understanding President Bolsonaro’s response to covid-19 within the greater scheme of Brazil’s economy</strong>…</h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>You may view being Minister of Finance as this emotionless act of calculating available resources (capital) and necessary spending. It is like family budgeting but with more resources and a greater list of expenses (and a few more mouths to feed). Market makers and investors take that budget data like a grocery store clerk and stock the shelves with the goods consumers have statistically shown a higher inclination to purchase and offer a few extra services that will draw them in.</p> <p>But the reality of the role (along with that of the President) is an act of psychology and confidence building. The therapist (or president as one economist described it) needs her patients to buy into a certain view of the world and adapt their behavior to that view: “Don’t have fear of failure…rather view the task as an opportunity for learning and potential success”…Or, more so, believe the world is back to normal and you should pursue business as normal. This line of thinking may be the silver lining in a bad game of prisoner’s dilemma with covid-19 in Brazil.</p> <p class="has-normal-font-size"><em><strong>Bold and different in many ways…</strong></em></p> <p>Shortly after the first confirmed covid-19 cases in Latin America in February, equity and debt prices plummeted across the region. The Brazilian stock exchange index IBOVESPA provided the largest freefall in the month of March with equities falling 16% in one day on the 12th of March. Most analysts interpreted Brazilian President Jair Bolsonaro’s response to the virus and the market freefall as apathetic with a general ‘keep calm and carry on’ mentality. Now, having tested positive, the public (cough patients!) are awaiting to see if Bolsonaro’s demeanor and approach change (yes, he is wearing a mask but a court ordered him to do that).</p> <p>It is may be too late for Bolsonaro to go from “let’s have a bbq” mantra to “let’s protect ourselves against covid-19.” He also may not feel compelled to make that change. His boldness and unorthodox approach to changing Brazil’s political system in his presidential campaign two years ago can be appreciated. His government quickly (in Brazilian terms) pushed through pension reform in October 2019 and coupled it with a more sustainable path forward with changes in public finances and the budget for the country. Led by Minister of Economy Paulo Guedes, the Bolsonaro administration sold more than $23 billion in state-owned assets in 2019, implemented deregulation measures, and eased monetary policy (including installing some of the lowest interest rates seen in recent history in the country). As Bolsonaro emphasized in 2019, the focus was on economic growth.</p> <p class="has-normal-font-size"><em><strong>Covid-19 and the most vulnerable (economies)</strong></em></p> <p>As 2019 was the year of change, 2020 was expected to be the return to growth. Yet covid-19 is exposing the existing macroeconomic vulnerabilities of the country (that we already knew was there based on the last five years). The policy direction and efforts that underpinned a relatively successful 2019 for the “outsider” president now will not have the time and space to create the changed envisioned by the Bolsonaro administration.</p> <p>Bolsonaro’s great effort to get the Brazilian public to pretend the virus is not coming for them had some economic reasoning behind it. First, lockdowns have generally bumped up unemployment in other economies, frustrated locals across the globe, and thrown economies into chaos. For any Brazilian president, choosing an option that CLEARLY increases unemployment is hard. The number of unemployed persons in the country almost doubled between 2012 and 2019 (going from roughly 7.6 million to nearly 13 million-plus during early 2019). The number declined by the end of 2019 but the employment nightmare in Brazil is hard to forget. Secondly, Brazil remains saddled with debt. The uncontrolled spending that plagued previous administrations cannot be easily wiped away with economic reforms. Policy changes altered the path for the future not the actual amount to be paid today.</p> <p>Appreciating the storylines of unemployment and public debt in Brazil, the Bolsonaro administration thus seemingly worried about shutting down Latin America’s biggest economy in the midst of the current pandemic. Such lockdown actions would exacerbate the fragility of Brazil’s economic turnaround plan by creating the need for a stimulus package (similar to those seen across the globe), which would only expand the current account deficit and drive down the currency. Both are likely to happen regardless as the pandemic continues to decimate different parts of the globe and disrupt every aspect of life and business</p> <p>Bolsonaro is also stuck in the reality of campaigning for validity. In other words, he still must prove his presidency is legit to the public that supported leftist administrations for some years. Although his administration reduced the country’s debt in 2019, that story partially can be added to the trend line that began in 2017 (yes, the country was trending positive on reducing its deficit since 2016!). Furthermore, the majority of Brazilian debt is in local currency thus the currency plunge is not exactly raising the cost of debt, which has been seen in other countries (i.e., Argentina, Lebanon, etc), but it is being felt by some Brazilians in their pockets. Bolsonaro’s administration sadly will have this backdrop juxtaposed with a likely bump in the deficit this year and he sadly cannot say a covid-19 lockdown caused it (though the reality of covid-19 globally surely underpins his troubles at home).</p> <p class="has-normal-font-size"><em><strong>Still betting on Brazil…</strong></em></p> <p>If Bolsonaro continues on the same path with covid-19, he must face the reality that his refusal to impose a lockdown will consume any storyline of 2020. Two health ministers previously departed over Bolsonaro’s response to handling covid-19 and other members of the cabinet have (quietly) showed their frustration. That said, he has contained any political fallout…no one expects the Bolsonaro administration to cave anytime soon or walk off stage. Furthermore, the currency is cheap and domestic investors are starting to come back to the market. Exports are likely to perform well in the near term post-covid-19 with local costs of production and returns both done in local currency. The biggest concern for Brazil may be whether foreign capital will come back to the country. Cheap does not necessarily mean good and thus does not always entice investors…a few Latin American countries can give a history lesson on this reality.</p> <p>There are many uncertainties to the Brazil model…but these uncertainties are not exactly a product of the Bolsonaro administration. The reality is that the only true certainty with covid-19 is that there will be a lot of uncertainty. Thus Bolsonaro’s ‘let’s sit still and see what happens’ approach may simply boil down to the ‘outsider’ president saying let’s try something different when he knows the other options may ultimately cripple his presidency, the economy, and his country.</p> <hr class="wp-block-separator"/> ]]></content:encoded> </item> </channel> </rss>