<?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>Economic Recovery – The Musings Of A Politics Junkie & Closet Economist</title> <atom:link href="https://kurtdavisjr.com/tag/economic-recovery/feed/" rel="self" type="application/rss+xml" /> <link>https://kurtdavisjr.com</link> <description></description> <lastBuildDate>Mon, 14 Feb 2022 19:13:18 +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>Distressed Investors Are Watching These Markets</title> <link>https://kurtdavisjr.com/distressed-investors-are-watching-these-markets/?utm_source=rss&utm_medium=rss&utm_campaign=distressed-investors-are-watching-these-markets</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Mon, 14 Feb 2022 19:12:01 +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[Argentina]]></category> <category><![CDATA[China]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Economic Recovery]]></category> <category><![CDATA[Economy]]></category> <category><![CDATA[Interest Rates]]></category> <category><![CDATA[Mexico]]></category> <category><![CDATA[Oman]]></category> <category><![CDATA[South Africa]]></category> <category><![CDATA[The Fed]]></category> <category><![CDATA[Turkey]]></category> <category><![CDATA[Uruguay]]></category> <category><![CDATA[US Dollar]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=566</guid> <description><![CDATA[To think many people predicted 2021 couldn’t get any worse than 2020. Little did they know that 2021 would bring delta, omicron, and inflation with a lot of messiness in-between. The result is 2022 will be volatile with a covid overhang and inflation coupled with aggressive interest rate hikes (by the U.S. Federal Reserve and other similar authorities across the globe) to combat the inflation – as a result, 2022 may present more distress than 2021. These are the markets distressed investors will, as a result, be watching in 2022.]]></description> <content:encoded><![CDATA[ <div class="wp-block-image is-style-default"><figure class="aligncenter size-large"><img fetchpriority="high" decoding="async" width="1024" height="569" src="https://kurtdavisjr.com/wp-content/uploads/2022/02/interest-2022-1024x569.jpg" alt="" class="wp-image-567" srcset="https://kurtdavisjr.com/wp-content/uploads/2022/02/interest-2022-1024x569.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2022/02/interest-2022-300x167.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2022/02/interest-2022-768x427.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2022/02/interest-2022-1130x628.jpg 1130w, https://kurtdavisjr.com/wp-content/uploads/2022/02/interest-2022-750x417.jpg 750w, https://kurtdavisjr.com/wp-content/uploads/2022/02/interest-2022.jpg 1280w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>(Photo Credit: MicroStockHub/iStock via Getty Images)</figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center has-medium-font-size wp-block-heading" id="covid-inflation-and-interest-rate-hikes-creates-opportunity"><strong><em><em><em><em><em><em><em>Covid, inflation, and interest rate hikes creates opportunity…</em></em></em></em></em></em></em></strong></h4> <hr class="wp-block-separator"/> <p>To think many people predicted 2021 couldn’t get any worse than 2020. Little did they know that 2021 would bring delta, omicron, and inflation with a lot of messiness in-between.</p> <p>The result is 2022 will be volatile with a covid overhang and inflation coupled with aggressive interest rate hikes (by the U.S. Federal Reserve and other similar authorities across the globe) to combat the inflation – as a result, 2022 may present more distress than 2021.</p> <p>Below are the markets that distressed investors will be keeping their eye on…</p> <h3 class="wp-block-heading" id="argentina"><strong>Argentina</strong><strong></strong></h3> <p class="has-medium-font-size"><em>Another bailout?</em></p> <p>Argentinian President Alberto Fernandez displayed renewed confidence when announcing the latest agreement with the International Monetary Fund (IMF) to restructure $40+ billion debt and access new funding. The deal helps to reduce the financial burden on the country under the prior agreement, which involved the Argentinian government repaying $19 billion in 2022.</p> <p>Argentina is currently facing one of its worst economic slumps – which says a lot for a country that has defaulted nine times since independence in 1816. Inflation has surpassed 50%, unemployment is rising, and the currency is plummeting AGAIN.</p> <p>While this new agreement may set a precedent for covid-related debt resolutions by avoiding the extreme austerity measures typically associated with the IMF, it does not necessarily resolve the unremitting distress in the Argentinian system. The country shocked many economists with 10% growth last year but will likely struggle to create a similar economic surprise this year. The more likely scenario is a weakened economy with many distressed investors lurking around…a light touch IMF process, however, should mean higher upside as the economy is not weighed down by austerity policies.</p> <h3 class="wp-block-heading" id="uruguay"><strong>Uruguay</strong></h3> <p class="has-medium-font-size"><em>Too attached to the dollar (and Argentina)?</em></p> <p>Uruguay’s economy is significantly dollarized with nearly three-fourths of the bank deposits in dollars. With the expectation of interest rate hikes from the U.S. Federal Reserve, the country’s banks will be under substantial pressure if (or more so when) the local currency falls in value. As the local peso depreciates against the dollar, unhedged borrowers will face a spike in credit losses and a drop in profitability, which will ultimately strain liquidity.</p> <p>High inflation will be a problem for the Uruguayan Central Bank to control. Raising local interest rates without choking off growth, as acknowledged by former Banco Santander executive and current president of the central bank Diego Labat, will not be easy. The economic struggles in Argentina could also create a shadow over the Uruguayan economy as Argentinians have deposited significant amounts of cash in Uruguay over the last couple years. Avoiding a spillover effect from Argentina will therefore be included on the agenda for Labat.</p> <h3 class="wp-block-heading" id="china"><strong>China</strong></h3> <p class="has-medium-font-size"><em>How distressed is the situation?</em></p> <p>Distressed real estate is all the talk in China these days. The world’s second largest economy is facing challenges which excites distressed investors. At the same time, this is new terrain for Chinese credit markets with many investors unclear how to approach the situation. Those foreign investors who know the market makers still must digest the headline numbers that forecasts 5-6% growth for the country in 2022 before picking up again in 2023. Many analysts believe Xi Jinping’s administration will also ramp up economic policy (and intervention) to ward off any further slowdown in the Chinese economy.</p> <p>Accordingly, there are Xi supporters and critics who theoretically have become odd bedfellows with the belief that the Chinese distressed story is exaggerated in the short term and will be quickly put to bed after the Olympics…the over-cynical ones think things will be addressed when the foreigners have gone home. The truth is the unprecedented nature of the China’s credit markets today makes many investors feel blind, confused, and aroused at the same time…No one can say if that is a good or bad thing for China.</p> <h3 class="wp-block-heading" id="turkey"><strong>Turkey</strong></h3> <p class="has-medium-font-size"><em>The three I’s spelling trouble: inflation, interest rates, and independence at the central bank</em></p> <p>President Recep Tayyip Erdoğan’s critics have long written his obituary…they are (too happily) updating it for the 2023 Turkish general elections. Inflation is skyrocketing at nearly 50% (with only Argentina doing marginally worse) and the economy is potentially falling into a ‘death spiral’. The old theory was the lira could not break 8 against the dollar back in January 2021…then it nosedived to 16.7 against the dollar in December 2021 and now sits around 13.6 against the dollar.</p> <p>Erdogan’s administration is very active in the market to support the currency and maintain a sense of stability. Yet a procession of central bank governors in and out of Erdogan’s administration accompanied by the government ministers who chose to either align with the governor-in-charge at-the-moment or challenge Erdogan’s economic policies suggests an economic crisis out of control.</p> <p>An unremitting push to cut interest rates by Erdogan’s administration now followed by emergency measures to help the lira recover some of its value against the dollar have not fixed the current crisis. Many businesses (and individuals) remain vulnerable to liquidity and forex issues, and it is not clear foreign investor are willing to help this time.</p> <h3 class="wp-block-heading" id="oman"><strong>Oman</strong></h3> <p class="has-medium-font-size"><em><em>Quickly turning the corner…but could there be a few hiccups here and there?</em></em></p> <p>It was only a year ago that Oman was in the market for a 15-month $2.2bn loan (with an option to extend by one year at the borrower’s discretion) as it faced a budget deficit of about $5.8bn. A month prior (in January 2021) to securing the loan, the country had tapped the international bond markets for $3.25bn in addition to the $500m raised in November 2020 and the $2bn raised in October 2020. Jump forward to 2022, the country has reduced its budget deficit to 3-4% from above 16% in 2020, with the rise in oil prices and managed spending (decline of 6% year-over-year) underpinning the change, and the economy is forecasted to grow 3-4% in 2022. The headline numbers suggest a country on the right track…yet the recently raised sovereign funding largely benefited Omani sovereign related entities and those doing business with the Omani sovereign related entities. There appropriately remains the potential for a few hiccups for those companies that still have legacy debt issues and have not been able to access capital markets.</p> <h3 class="wp-block-heading" id="mexico"><strong>Mexico</strong></h3> <p class="has-medium-font-size"><em>A state-centric agenda, inflation, and slow growth…not a great mix?</em></p> <p>There is a trend with this list…many eyes will be on Latin America. Mexico continues to benefit from the rebound in U.S. growth but is facing significant internal economic struggles. The Mexican economy is estimated to have contracted in the third quarter of 2021 and only slightly expanded in the fourth quarter of 2021. With the growth outlook at sub-2%, the country is at risk of falling into the middle-income trap where growth slows, and the country fails to transition to a high-income economy with the failed transition period characterized by rising costs and declining competitiveness.</p> <p>President Lopez Obrador is not helping the situation as he worries investors with his more state-centric agenda, including an electricity reform bill intended to strengthen the power (and market share) of the state utility company. That said, investor anxiety did not slow the country’s ability to tap international debt markets for two dollar-denominated bonds in January. Non-sovereign related borrowers, however, have not had the same luxury with international markets and will likely be vulnerable to interest rate increases, slower growth, and a lower availability of capital. Any state-centric agenda will ultimately fail to help those borrowers in 2022.</p> <h3 class="wp-block-heading" id="south-africa"><strong>South Africa</strong></h3> <p class="has-medium-font-size"><em>Is the sovereign risk overstated?</em></p> <p>The latest data suggests South Africa largely dodged the omicron pain imagined when the world closed borders to the country at the end of November. South Africans travelled internally which propped up hospitality and tourism. Furthermore, the country benefited from strong commodity prices.</p> <p>Yet, sovereign debt risks remain. But those expecting the country to fall apart should remember that South Africa cannot lose its last sovereign rating because foreign investors (limited by the requirement to invest in investment grade countries) would then be required to exit. President Cyril Ramaphosa and his team have this in mind and will do everything to avoid economic mutiny. Thus, investors can expect resolutions (even if temporary) at some of the state-controlled entities.</p> <hr class="wp-block-separator"/> ]]></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 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="(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>Lebanon’s Search For A Solution in 2021</title> <link>https://kurtdavisjr.com/lebanons-tragedy-economy-politics-covid-19-solution/?utm_source=rss&utm_medium=rss&utm_campaign=lebanons-tragedy-economy-politics-covid-19-solution</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Fri, 08 Jan 2021 10:31:25 +0000</pubDate> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[2021]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Economic Recovery]]></category> <category><![CDATA[Israel]]></category> <category><![CDATA[Lebanon]]></category> <category><![CDATA[Politics]]></category> <category><![CDATA[Port Explosion]]></category> <category><![CDATA[Saad Hariri]]></category> <category><![CDATA[Syria]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=396</guid> <description><![CDATA[Lebanon has long swept its challenges under the rug and celebrated its successes. But the explosion back on August 4th in the port area of Beirut—the capital of Lebanon—, in a figurative and physical sense, unveiled a tomb of hidden treasures and misfortunes of years past. Yet the tragedy of the blast was it not only took so many lives, but its revelations of treasures and misfortunes were not exactly new...]]></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/2021/01/Lebanon-FT.jpg" alt="" class="wp-image-398" width="580" height="326" srcset="https://kurtdavisjr.com/wp-content/uploads/2021/01/Lebanon-FT.jpg 700w, https://kurtdavisjr.com/wp-content/uploads/2021/01/Lebanon-FT-300x169.jpg 300w" sizes="auto, (max-width: 580px) 100vw, 580px" /><figcaption> (Photo Credit: Hamzeh/EPA/Shutterstock)</figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading"><strong><em>Dispersing with the political and economic remnants of civil war</em>…</strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>This is not Lebanon. This is Lebanon. Maybe both statements are true.</p> <p>The hope, the destruction, and the hope again…or is it the destruction, the hope, and the destruction again?</p> <p>Lebanon has long swept its challenges under the rug and celebrated its successes. But the explosion back on August 4<sup>th</sup> in the port area of Beirut—the capital of Lebanon—, in a figurative and physical sense, unveiled a tomb of hidden treasures and misfortunes of years past. Yet the tragedy of the blast was it not only took so many lives, but its revelations of treasures and misfortunes were not exactly new.</p> <p>The treasures of Lebanon are its people and culture, and the resilience that keeps the people and culture fastened together. It is hard not to know these treasures or hear about them if you are to know Lebanon and have Lebanese friends. The fears are also known—political induration, economic and financial crisis, and the unavoidable foreign influence—yet they are danced around and skipped over in many conversations. Thus, the mystery of the entire situation is how does anyone, after the explosion, pretend the treasures easily outweigh the misfortunes (especially as the people continue to exit for other countries).</p> <p>More than four months later, the Lebanese diaspora has returned home for the holiday season to find a country still searching for a new way. Many visiting Lebanese diaspora are young(er), employed and idealistic, looking out at a local public that is increasingly old(er), unemployed, and decreasingly optimistic. This is not how their parents described Lebanon in its past days. The stories of today describe a grim reality on the ground…thus what is to be changed in the country if the stories are to resemble the past optimism of their parents’ tales.</p> <p class="has-medium-font-size"><strong>A Civil War Chameleon</strong><strong></strong></p> <p class="has-normal-font-size"><em>The Civil War That Never Ended But Adjusted</em></p> <p>More than 45 years ago, in April 1975, the Lebanese civil war broke out. The war lasted 15 years, taking more than 150,000 lives, injuring more than 300,000, and leading to the mass emigration of Lebanese. The end of the war was equally catastrophic with both Israel and Syria making best efforts to control the country. A series of political assassinations and the continuous picking at old political scabs fueled further instability in the country. It was the assassination of former Lebanese Prime Minister Rafiq Hariri on Valentine’s Day in 2005 by a suicide truck bomb in Beirut that ultimately made Syria quit its occupation of the country. A senior member of Hezbollah was convicted for the planning of the assassination by an UN-funded special tribunal in the Hague back in July last year. A new war with Israel would erupt in 2006…for many Lebanese (and Israelis), this was only a continuation of the strained relationship that has soiled regional peace efforts for decades. The uprising in Syria in 2011 further picked at old wounds as Syrian refugees flooded into Lebanon for safety.</p> <p>Elections and protest movements are equally both synonymous with Lebanese politics and can function as a never-ending extension of the Lebanese civil war. The country existed without a president for about 29 months until October 31, 2016 when the Lebanese Parliament elected Michel Aoun after 40 failed attempts to fill the post. Various political parties undermined previous efforts to fill the vacancy with boycotts that prevented the necessary quorum for a vote. Following the 2016 election, President Aoun reappointed Saad Hariri as prime minister. Hariri previously served as prime minister from 2009 to 2011. He would unexpectedly resign on November 4, 2017 in a televised statement from Saud Arabia with unabated references to Iran and Hezbollah’s interference and influence in the greater Middle East politics and fears of assassination. </p> <p>Then Hariri, after a series of maneuvers and failed attempts to leave Saudi Arabia, would find his way to France to meet French President Emmanuel Macron and then back to Beirut where he suspended his resignation on November 21<sup>st</sup> and fully rescinded it on December 5<sup>th</sup>. Hariri would later announce another resignation in October 2019 following a series of street protests by the Lebanese public against a lack of transparency and accountability in government. He would leave office when Hassan Diab, the former education minister, was appointed to prime minister on January 21, 2020 and then be reappointed as prime minister on October 22<sup>nd</sup> after Diab resigned following the aforementioned explosion at the port. </p> <p>Lastly, the most recent parliamentary elections due for 2013 did not happen until May 2018 with the March 8<sup>th</sup> coalition, a coalition of political parties and independents united by a pro-Syria stance and allied with Hezbollah, taking a majority share of the power. The March 8 Alliance and the March 14 Alliance—a coalition of political parties and independents united by an anti-Syria stance—both formed in 2005 are manifestations of the ongoing alliances from the civil war codified into contemporary Lebanese politics.</p> <p class="has-medium-font-size"><strong>The “Slicing the Cake” Nature of Lebanese Politics</strong><strong></strong></p> <p class="has-normal-font-size"><em>Political Power Sharing and Patronage</em></p> <p>So many in Lebanon grew up being told that Lebanon’s political system was necessary to protect the country. The UN-brokered Taif Agreement and related agreements following the end of the civil war was explicit in terms with a pre-assigned number of seats in the Lebanese Parliament to each of the different religious groups and sects. Unsurprisingly, political parties have been designed around these groups to ensure political power and mobilize voting blocks. Thus, although more religiously diverse than its Middle Eastern neighbors as well as having a very sizeable Christian population, Lebanon cannot escape the very palpable Sunni-Shia sectarian divide that permeates the politics of other predominantly Muslim nations in the region. </p> <p>Furthermore, the selection of candidates and subsequent voting is filtered through the same religious lens. Candidates are generally selected along religious fidelity with repeat selection of candidates for parliament by elder Lebanese which generally frustrates young Lebanese. The patronage system for cabinet posts, jobs and so on consequently remain dominated by specific families. Voters, especially younger voters, complain about the results, but the rules generally ensure the same outcome or, at least, prevents things from changing. The “system” also finds strength through continued emigration of talented Lebanese, who, in a figurative sense, are invited to send and spend money in Lebanon to support a fragile economic state but should stay out of politics. As a result, the protestors on the street are increasingly younger and mobilized by weakened social services and a troubled economy, ultimately exhibited by the country’s sovereign default last year.</p> <p>The apportionment and later subdividing of the spoils of patronage is a rather limited course of action for reversing the sectarian challenges. In other words, the “slicing the cake” style of politics has created an outwardly image of a functioning political system while mistrust percolates among religious sects and the greater Lebanese population. And, as the economic cake and associated positions of political power shrink, it is increasingly hard to find agreement on how to share responsibility and rewards. The pie is also shrinking as state-owned enterprises labor through economic turmoil caused by both mismanagement and the economic demise of the state. In the past, the state could financially engineer higher returns for investors and citizens willing to lend their dollars to the state. Today, both markets and Lebanese citizens are backing away.</p> <p class="has-medium-font-size"><strong>The IMF is Not a Miracle Worker</strong><strong></strong></p> <p class="has-normal-font-size"><em>The Deeper Problems and Challenges</em></p> <p>Lebanon’s economic challenges are not new. The country has regularly walked a tightrope with its sovereign balance sheet and avoided collapse with some form of financial sticky plaster from Middle Eastern neighbors or the market at the last minute. Yet the sovereign default last year completely exposed the bleeding in the system, with a shortage of foreign currency, an unclear strategy for attracting additional foreign currency, and an unceasing impatience and disdain from the public for the financial system in its entirety. A number of economists inside and outside the country supported the country defaulting on its debt with one common theme underlying their thinking: Lebanon needed to start over from scratch.</p> <p>Now, from “scratch” is hard unless you can blow up the entire system which is complicated for several reasons. First, decades of extracting income from rent-based sectors, including banking, real estate, and remittances to fund imports and consumption has emptied the coffers of the government as well as frustrated that small group still willing to fund the government. International markets have turned off the tap while neighboring countries show some willingness to finance the country only if that money can come with some political fidelity which Lebanon cannot offer within today’s politics. Secondly, the financial sector, in particular the banks, cannot find the usual support from the Lebanese population. Local Lebanese have lost significant wealth and buying power with the plunge of the Lebanese pound to roughly 8,000 to 9,000 pounds per dollar (versus the peg rate of 1,500) and have been hammered economically by covid-19 at home. Lebanese diaspora outside the country struggle to bet on the resilience and recovery of the country and choose to safekeep their money elsewhere across the globe. </p> <p>The IMF accordingly will struggle to employ the normal tactics in its reform toolbox. Currency devaluation… already done. Shrink the public sector…that could work but the local population is already combating inflation near 60% and struggling to pay for basic goods and services. Thus, the stripping of subsidies on energy and gasoline alongside food products ostensibly seems impossible today. Lastly, the focus on fiscal consolidation is not necessarily an easily digestible medicinal pill for a country that requires real economic growth, i.e. beyond infrastructure spending at the government level or inflow of dollar bank deposits from Lebanese both of which are unlikely in the short term in today’s environment</p> <p class="has-medium-font-size"><strong>“Falling on the Sword” to Save the Country</strong><strong></strong></p> <p class="has-normal-font-size"><em>Looking Back at Turkey in the 2000s and De Klerk in the early 1990s</em></p> <p>Lebanon may require the most extreme series of reforms. That said, the likely initiator of such reforms will likely not have long-term political survival. Consider the case of Turkish economic crisis in 2000s. The IMF provided more than $11 billion in loans while the state sold 51% stake of Turkish Airlines with advertisements placed in newspapers to attract buyers. Lebanon will require major loans to fund economic growth as foreign investors—similar to the experience in Turkey in the late 1990s—are reluctant to return to the country today. That said, Turkey became indebted to the IMF and, in the view of some critics, was placed at the mercy of the IMF’s political <em>and </em>social willpower. Additionally, some treasured Turkey state assets were no longer fully owned by the state…privatizing Lebanese state assets is already a delicate subject. </p> <p>Despite all these efforts in Turkey, the ruling party could not prevent the landslide victory of the AKP led by current Turkish President Recep Tayyip Erdoğan in 2002. This point is to say the system may need its F.W. de Klerk reform moment. De Klerk remains a controversial figure in South African history. He was the leader of the Afrikaner ethnic National Party (disbanded in 1997) yet he also later dismantled apartheid with universal suffrage to the South African population. He would win the Nobel Peace Prize for figuratively falling on the sword for the National Party’s historic wrongs and upending the system that maintained its white-minority rule. Lebanese politics may require several De Klerk moments…absent that, a new inflow of foreign capital or sale of state assets may not be enough to calm the angst of the young Lebanese and beyond, especially if an economic recovery only ultimately reinforces the old political system. Every party runs out of cake to eat and share at some point…or better said, a political system that sustains itself solely on perfectly allocating the spoils of war is bound to continuously falter and ultimately fail unless it can evolve and change (the jury is still out on Lebanon).</p> <hr class="wp-block-separator"/> <p></p> ]]></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> </channel> </rss>