2018 Economic fundamentals encouraging, politically fraught

For 2018 the economic fundamentals look reasonably solid. The IMF in its October report forecasts global growth for 2018 at 3.7 percent. The report also observes, “…pickups in investment, trade, and industrial production,coupled with strengthening business and consumer confidence…”.

Politically however, 2018 sees a much more fraught outlook. A quick tour of trouble spots illustrates just a few of the obvious and not so obvious risks to market stability.

Europe – Brexit and German uncertainty

As expected, the EU and UK managed to stumble into 2018 without the Brexit talks collapsing. But the two sides are far apart on the details of the transitional period for the phase two negotiations.

Where there is uncertainty in Germany then there’s uncertainty for the EU.

The Social Democratic Party and Christian Democratic Union are in talks form another Grand Coalition. This time around their sharpening differences will have an adverse impact on the coalition’s effectiveness.

China – One state policy challenge

The US, India and Japan, pursuing containment or trade concessions, have made attempts to challenge China’s One State policy. In response China has significantly stepped up military drills around Taiwan. While military confrontation is unlikely, policy makers may be underestimating the risks of flirting with this particular red line…

South America – Market friendly governments under threat

The more market friendly governments appear under greater threat as endemic corruption and social problems fuel protests.

The weaker central American countries look particularly vulnerable.

Middle East – Alliance obstacle to stability

A new obstacle to middle east stability has appeared in the form of a US, Israel, Saudi alliance determined to confront Iran. For this alliance the question is, “…about containing Iran now or fighting them later”.

Africa – A new battleground and transitions

The US White House formally requested in October an investigation by the International Trade Commission into trade and investment with Sub-Saharan Africa. The region now looks set to be another trade battle ground between the US and China.

Parts of Sub-Saharan Africa are experiencing a deteriorating security situation caused by ethnic tensions and ISIS inspired terror. One example is Niger, the world’s fourth biggest uranium producer.

Zimbabwe and South Africa are both embarking on a transition from previously corrupt and nepotistic leaderships. With the entrenched material interests of those losing out, the success of these transitions is not certain.

US – Spinning all the plates

Under Donald Trump the US has embarked on a multitude of trade disputes with friends and foes alike. With the ‘America first‘ doctrine these disputes will become more acute.

The latest round of UN sanctions against North Korea appears to have reduced the danger of direct military confrontation. Nevertheless, North Korea will continue to be a dangerous flash-point.

In the defence of its hegemony the US is spinning all its strategic plates at once. The problem is that those plates are being spun by comparative novices…

2018 – A political roller-coaster

While the economic fundamentals look good, be prepared for sudden surprises sprung by a 2018 political roller-coaster.

Gary Hollands

Geopolitical analyst Tyga FX

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