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Whether we're talking about Brexit or, above all, the election of Donald Trump, recent political changes have undoubtedly been shocks. It is no longer simply a question of shifting the cursor of economic policy towards a little less state, less taxation and less social protection. Instead, the aim is to cure the ills of an ailing society by designating scapegoats and demonising the ‘rest of the world' in particular.
The objectives are ambitious. Without its even being necessary to judge the effectiveness of the solutions proposed, suffice it to say that they are above all radical. So radical, paradoxically, that they are not materialising as rapidly as might be hoped by those betting on their effectiveness or as might be feared by those who consider them inappropriate and dangerous.
In the short term, the direct impact on the real economy and on agents' behaviour is minor, because institutional obstacles must first be overcome and/or the assent of national parliaments obtained.
Highlights: Poland is forecast to emerge from deflation in 2017. In Russia, will Mr Putin continue to be patient? What role do women play in the Middle East and North Africa labour market? Nigeria is experiencing a liquidity crisis. In China, things are kicking off quite well? In Brazil, the Attorney General spectacularly intervened in the Odebrecht affair.
Highlights: Azerbaijan is at the mercy of oil... Serbia and Kosovo have awoken their old demons. In Saudi Arabia, a reformist 2017 budget has been drawn up on the basis of Brent at USD 50/bbl. In Côte d'Ivoire, the crisis has multiple faces. In China, 2017 will be a year of challenges. Is Mexico staring at the end of NAFTA?
On 17 January, UK PM Theresa May clarified the broad objectives of her government's plan for the Brexit. The UK will leave the Single Market and the customs union. It will seek a comprehensive free trade agreement with the European Union and ambitious trade deals with third countries. May also promised a parliamentary vote on the final terms of the Brexit.
Highlights: Doubts persist as to Turkey's potential for growth. In Serbia, the public finances are improving faster than expected. In Egypt, the new floating exchange rate regime has devalued the pound by 57% in 12 months and triggered a new bout of inflation. In South Africa, the economy is flagging in a gloomy climate. Is China moving towards making fewer foreign acquisitions? GDP has again fallen in the third quarter in Brazil.
US risks are likely to materialise in an increase in long-term rates, an appreciating dollar, and, if the expansionary fiscal policy suddenly propels the nominal GDP growth rate well beyond its potential rate, in a far more aggressive monetary policy, especially from 2018 onwards. In 2017, the Eurozone is less likely to be impacted by real transmission channels than by financial ones, due to the tightening of financial then monetary conditions in the United States, resulting in upside pressure on interest rates, to which will be added pressures from its own political risk. In this way it will be up to the ECB alone to provide minimal visibility and steer interest rates. It will need to soothe anxious, volatile markets with the hope that, in 2018, once those national political deadlines are behind it, Europe will exist in a manner other than through its monetary policy alone.
Highlights: Russia's Central Bank is on the horns of dilemmas. Turkey is seeing a very significant worsening of its corruption indicators. In Tunisia, the economy is ailing despite the aid, but there is some political hope. In South Africa, the budget has been revised in a toxic atmosphere. In China, the Communist Party's Plenum was held under the banner of transparency... Brazil cuts its key rate for the first time since 2012 (but only by 25bp).
Because of an illegitimate, disturbing and – let us say it – highly contestable monetary-policy framework from the ECB, the economic, financial and political future of Portugal lies in DBRS's hands. On 21 October, DBRS will update its opinion on Portugal. If it downgrades the country's credit rating by one notch then Portuguese bonds will no longer be eligible as collateral at ECB refinancing operations nor for QE. Our base-case scenario is that DBRS will not downgrade Portugal and that it will keep its outlook unchanged (stable).
Highlights: Hungary's sovereign paper "investment grade" rating has been reinstated. What is the nature of the Russian regime? In Egypt, support from multilateral agencies has helped boost reserves, but the conditionalities are painful. Q2 external demand has been saved from recession in South Africa. India has adopted a law designed to unify the tax system for goods and services at national level. Mexico: why is the peso so weak and the key rate so high?
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