GPM Global Forecast (01-18-16)
January 17, 2016
The GPM Global Forecast is a new bi-weekly, members-only article series for 2016. It will provide analysis and short-term forecasting on key military, political, and economic events around the globe. To ring in the New Year, the first two will be made available to all of our valued readers. Subsequent GPM Global Forecasts will be sent directly to our members’ inboxes.
Iran Enters a New Era as Nuclear Sanctions are Lifted
Background
The United States and EU have lifted economic sanctions on Iran following confirmation from the United Nations that the country is following through on its obligations set out in last year’s nuclear accord.
Outlook
Implementation Day arrived earlier than many expected, probably because the Iranian government wanted to rush sanction relief ahead of February elections, which won’t just determine the next parliament but also the Assembly of Experts – the clerical body that might be called on to pick Iran’s Supreme Leader should Ayatollah Khamenei die or step down in the next eight years.
One immediate impact of sanction relief is an increase in global oil supply. Iran used to be OPEC’s second-largest producer, and although its energy infrastructure is aging and investment-starved after years of sanctions, the country expects to sell an additional 500,000 barrels a day right out of the gates. The lifting of sanctions caused an immediate plunge in the stock markets of oil-producing Gulf states, with Saudi Arabia seeing a drop of 5.4% and Qatar 7% in Sunday trading.
While EU companies will now be free to trade and invest in Iran, many US sanctions will remain in place beyond the full implementation of the deal. These pertain to Iran’s status as a state sponsor of terrorism and its human rights record. New sanctions are also a possibility following Iran’s recent ballistic missile tests. As a result, in the global rush to get a foothold in Iran’s untapped market of some 80 million people, US companies will be at a distinct legal disadvantage vis-à-vis their European and Asian competitors.
The nuclear deal and the future tone of US-Iran relations will feature prominently in the upcoming US presidential race, evident in Hilary Clinton’s declaration that she supports new sanctions against Iran mere hours after the deal was officially implemented. However, with the UN green light and sanctions officially dropped, a substantial hurdle to any diplomatic slip back has been erected against detractors in both the United States and Iran.
All Eyes on the Bank of Canada Governor Stephen Poloz
Background
Economic metrics in Canada are going from bad to worse. October GDP numbers showed none of the growth that could help take the sting off of September’s 0.5 surprise contraction. Even more worrying to Canadian policymakers, October’s GDP report also revealed drops in Canada’s retail, construction, and manufacturing sectors, which suggests that the contagion of oil sector collapse could be creeping into other corners of the Canadian economy.
Short of a Christmas miracle from retail, it appears that Canada’s fourth quarter GDP numbers will once again disappoint.
The strongest headwind is from global oil prices, which are still in search of a bottom amid the market volatility of the first few weeks of 2016.
Outlook
These are the issues that Bank of Canada Governor Stephen Poloz must grapple with ahead of the bank’s first meeting of the New Year on January 20.
A few months ago, an interest rate cut seemed extremely unlikely given the plunging loonie, which is now trading at the 69 cents range. There’s also the issue of the huge debt pile constraining the average Canadian consumer, a trend that is further exacerbated with every rate cut from the central bank.
Yet Poloz has surprised before, notably with his moves to stimulate the economy in the lead-up to parliamentary elections last year. There is a growing feeling that Poloz could make another surprise cut on January 20, bringing Canada’s rate to its 2009 lows.
The Battle for Helmand Rages in Afghanistan
Background
Nearly a year on from the official NATO handover to Afghan security forces, the Taliban is fighting to re-establish a territorial footprint in its former stronghold of Helmand province. 2015 saw the militant group take large swathes of the Helmand countryside, with Sangin – a district just northeast of the capital of Lashkar Gah – falling in December. Ten of Helmand’s fourteen districts are now under Taliban control.
Outlook
The Taliban are digging in for the long haul. Control of the Helmand countryside means huge revenue streams from the drug trade, and the Taliban has been putting this money to work in trying to curry favor with the local population (the majority of whom are Pashtuns) and presenting itself as a less corrupt alternative to the government authorities. For example, militants are encouraging members of the security forces to surrender, giving them safe passage home, and paying a handsome fee for whatever government-issue weapons or equipment the deserter brings with them.
It’s the same strategy that helped the Taliban win the Afghan civil war back in the 1990s.
If Helmand falls, then Afghanistan effectively enters into a state of civil war. It may not happen quickly, but if the current trend of Taliban entrenchment and government mismanagement is allowed to continue, then it’s only a matter of time.
China’s Battered Investors Await 4Q GDP Numbers
Background
China’s stock markets boomed and busted through 2015, and the first few weeks of 2016 have been heavily weighted on the ‘bust’ side as the benchmark Shanghai Composite has already lost 18% so far this year. More recently, investor focus has shifted from China’s equity markets and towards the health of the wider Chinese economy. 4Q GDP and retail sales numbers, scheduled for release January 19, will provide critical information on just how bad things are in the Middle Kingdom.
Outlook
China’s stock markets have long been an arena detached from the laws of economic causality, one where investor sentiment reigns supreme. The Tuesday data will steer that sentiment into further panic or much-needed relief. And with the world now scrutinizing the Chinese economy for signs of life or death, the economic data will surely impact trading floors from London to New York.
Central African Republic to Hold Run-off Presidential Elections
Background
The Central African Republic (CAR) held elections on December 30 to replace the unelected transitional government originally headed by Michel Djotodia. That government came to power in 2013 following a coup that triggered widespread religious violence in the country. But since no candidate received over 50% of the vote in the December polls, another round of voting will take place on January 30.
The two leading candidates are Anicent George Dologuele, the former prime minister under deposed president Ange-Felix Pasatte, and Faustin Archange Touadera, the former prime minister under Francois Bozize, who was removed from power in the 2013 coup.
The CAR ranked 185th on the 2014 UN Human Development Index, ahead of Democratic Republic of Congo and Niger. The country is considered to be mineral-rich, but this has turned out to be more of a curse than a blessing. Resources like diamonds and timber are coveted by various warring factions, and often sold on the international market to fund a never-ending cycle of fighting within the CAR.
Outlook
It’s unlikely that a peaceful transition of power will bring an immediate end to the peoples’ hardships in the CAR. In fact, the opposite might be true. An 11,000-strong UN peacekeeping contingent has been key in de-escalating a wave of religious violence between Christian and Muslim militias. A recent child sex scandal will reduce that number by around 1,000, as the accused brigade from the Democratic Republic of Congo will not be coming back for another tour. The French contingent (also the subject of several child sex allegations) is also planning to pull out after elections are wrapped up.
An early withdrawal of the bulk of the UN peacekeeping contingent does not bode well for the stability of the CAR. And given the deep-rooted and persistent security issues waiting for whichever candidate comes to power after January, the country will likely remain on the razor’s edge of sectarian conflict for the immediate future.
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