2019 Annual Forecast - Sezione Roma Due Luigi Broglio
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2019 Annual Forecast
Annual Forecasts
Dec 3, 2018 |
01:09 GMT
67 mins read
(MANJUNATH KIRAN/SPENCER PLATT/DANIEL LEAL-OLIVAS/MLADEN
ANTONOV/JUSTIN SULLIVAN/ISSEI KATO/DAVID MCNEW/IGO
ESTRELA/STR/AFP/Gett
Overview
The Great Power Competition Intensifies. The United States will escalate
its strategic offensive against China with tariffs, sanctions, regulatory buffers
around emerging
(MANJUNATH technologies,
KIRAN/SPENCER stronger backing for Taiwan and a more assertive
PLATT/DANIEL LEAL-OLIVAS/MLADEN
ANTONOV/JUSTIN SULLIVAN/ISSEI KATO/DAVID MCNEW/IGO
ESTRELA/STR/AFP/Gett
posture in the South China Sea. At the same time, failing arms control pacts will
accelerate an arms race among the United States, Russia and China. The edgier
geopolitical climate will create strategic opportunities for more vulnerable
borderland powers, such as Poland and Taiwan, but will also create massive
headaches for middle powers trying to find neutral ground, such as Turkey,
India and Vietnam.
Increased Geopolitical Risk for Business. Citing national security threats,
the United States will lean heavily on Europe, Japan, Australia, Canada, South
Korea and Taiwan to erect stronger barriers to Chinese investment. This will
affect research and trade in strategic areas, from artificial intelligence to 5G
network rollouts beginning in 2019. China's imperative to catch up in critical
areas like aerospace and high-end semiconductor development will only
increase cyberthreats to corporations and compel an overall more offensive U.S.
policy in cyberspace. In addition, corporations will have to contend with supply
chain disruptions and heavier fines and lawsuits for data breaches.
Measuring Trade Volatility in the Global Economy. A U.S. showdown with
the World Trade Organization could paralyze the body's dispute settlement
process, forcing countries into a less predictable bilateral track to resolve their
trade differences. Canada, Mexico, Japan and South Korea have a better chance
of negotiating quotas to mitigate the threat of U.S. auto tariffs, but the European
Union's trade talks with the United States are doomed to fail. And while
additional U.S. tariffs on China will add to trade uncertainty, the overall effect on
the global economy from White House trade policy in 2019 will be relatively
muted.
Hair-Raising Scenarios for Italy and Brexit. A defiantly populist Italian
government will pose the biggest threat to the eurozone in 2019 as concerns
grow over the country's rising debt levels and fragile banking sector. Financial
markets and dangerously wide spreads in bond yields — rather than threats from
Brussels — will prove to be Rome's biggest disciplinarians. Brussels will
simultaneously work to avert a no-deal Brexit scenario with the United Kingdom,
but a British parliamentary veto remains the single biggest obstacle to its orderly
exit from the European Union.
Four Geopolitical Trends for 2019
The Next Steps in the Anti-Iran Campaign. With far-reaching secondary
sanctions in place, the United States will forge ahead with its campaign to isolateIran regionally and weaken the country from within. This will increase friction
between Washington and Tehran and diminish the already scant likelihood of a
constructive negotiation. A common agenda opposing Iran will help insulate
strategic, high-level ties between the United States and Saudi Arabia despite
rumblings within the royal family and foreign governments over Saudi Crown
Prince Mohammed bin Salman's leadership.
An Eye on Growing Supply in Global Energy Markets. Saudi Arabia and
Russia will carefully manage oil output to prevent a price plunge as they monitor
the effects of residual Iranian exports on the market. There is also the potential
for production growth out of Iraq and Libya and a significant easing of export
capacity constraints on the United States later in the year. Global liquified
natural gas markets will be shaken up when the United States assumes its place
among the top three LNG exporters in the world in 2019.
Disruptive Forces at Work in the Americas. Hard-line and U.S.-aligned
governments in Brazil and Colombia could drive an atypically proactive regional
effort to contain spillover from Venezuela's ongoing crisis. Brazil's efforts to
shake up and reform the Mercosur trading bloc will come up against a politically
hamstrung Argentina. The power of the referendum will meanwhile be put to
the test in Mexico, where an aggressive populist agenda will raise investor risk.
Ethiopia Drives Big Change in the Horn of Africa. Ethiopia's ambitious
agenda is generating economic interest and attracting outside powers to the
Horn of Africa. But internal challenges to the current leadership and ethnic strife
Global Trends
risk slowing Addis Ababa's momentum.
In today's world, nations are becoming increasingly interconnected
by air, land, sea and cyberspace. As globalization has knitted
countries and continents closer together, the borders of the map
Section
and the barriers of geography have been rendered, in some ways,
Nov 19, 2018
obsolete.
| 20:19 GMT
Now events in one region can more easily have
consequences
16 mins read in another, at times even rippling across the globe.Section Highlights
A great power rivalry among the United States, China and Russia will accelerate a high-
stakes arms race and increase competition in cyberspace. Global governance around
these building threats will prove elusive as divisions deepen in the international system.
Even as the United States escalates a strategic offensive against China with additional
tariffs and regulatory blocks, sanctions, increased backing for Taiwan, and maritime
challenges in the South China Sea, Beijing will rely on its heavy economic leverage to chip
away at U.S. alliances.
A White House showdown with the World Trade Organization could grind the body’s
dispute settlement process to a halt, forcing countries back to a less predictable bilateral
track to sort out their trade frictions.
As Iranian oil exports diminish under sanctions, U.S. production is set to increase, and as
the global economy experiences more sluggish growth in 2019, Saudi Arabia and Russia
will remain highly reactive to global oil markets to prevent a steep price plunge. Global
liquefied natural gas markets, meanwhile, will grow more competitive as the United States
earns its place among the world’s top LNG exporters in 2019.
A New and Uncomfortable Global Reali
More than a year ago, Stratfor noted that the intensifying competition among
the United States, China and Russia would emerge as the defining feature of the
international system, creating a conundrum for the middle powers caught in the
throes of great power rivalry. It didn’t take long for trade wars, cyberattacks,
shifting defense strategies and arms races to convince the world that this is the
new and uncomfortable global reality.
Great power competition is set to only intensify in 2019. The White House will
double down on its attempts to short-circuit China’s advances across a number of
strategic fields. Beijing will take some blows along the way, but China still has the
means and more motivation than ever to accelerate its timetable and effortstoward reaching parity with the United States. And while there is no love lost
between China and Russia, the potential for a tighter alignment in 2019 is likely
to overcome the friction points in their uneasy partnership.
This new global dynamic creates a massive
headache for middle powers and globally
exposed businesses attempting to navigate
an increasingly complex landscape.
! " # $
The year will expose the limits the United States faces in trying to isolate China
both from within tightly interwoven supply chains and from even the most
dependable U.S. allies, caught between maintaining a tight security relationship
with the United States and a growing need to expand their economic ties with
China. This global dynamic will create a massive headache for middle powers
and globally exposed businesses trying to navigate this complex landscape. Even
as major European powers try to assert EU sovereignty on the global scale to
avoid becoming collateral damage, they will remain largely reactive to the
broader competition. And for those powers lying along the borderlands, from
Poland to Turkey to Taiwan, a tenser geopolitical climate will translate in some
cases into strategic opportunities as they try to work quickly to shore up security
alliances and extract special economic benefits from powerful suitors.
Disruptive technologies and fractured
treaties will reshape military arsenals in the
years ahead.
! " # $
The rapid development of disruptive weapons technology combined with the
steady deterioration of arms control pacts will accelerate the high-stakes arms
race among the United States, Russia and China. Washington's likely imminentwithdrawal from the Intermediate-Range Nuclear Forces Treaty and a shakier negotiation over the New Strategic Arms Reduction Treaty will deepen divisions in Europe as Western powers try to avoid getting caught in an arms buildup while states on the front lines with Russia, like Poland, the Baltic states and potentially Romania, volunteer to host U.S. military assets. At the same time, the United States will be freeing itself to build up a formidable arsenal to challenge China, all while Beijing strategically avoids entering such arms pacts and continues apace with its own buildup in the Western Pacific. The ideological dimension to the great power competition will play out more subtly. The United States is rising to the challenge of competing with a China- Russia axis, but it is relying on unorthodox tactics and a broadly unilateral
course that will risk alienating many of the middle-power allies it needs on its side. With the Western front divided and the United States no longer actively defending — and in some cases actively battling — the postwar rules-based system of managing the global order, China will find plenty of inroads among middle powers to blunt the U.S. offensive. Moreover, the technology-driven form of digital authoritarianism that China is harnessing to manage affairs at home and export abroad will offer a compelling alternative to powers with autocratic leanings that have grown wary of the liberal political conditions that traditionally come with partnering with the West.
U.S. and China, Ready to Rumble Into 20 The U.S.-China competition will escalate on practically all fronts in 2019. Not only will China face heightened economic pressure from tariffs and regulatory blocks against Chinese firms, but the United States will also use sanctions to
tighten the screws on Beijing over potential issues including cyberattacks and
human rights. (Beijing's treatment of the Uighurs and other minority groups, for
example, will present a prime target for U.S. sanctions policy.)
On the security front, the United States will more assertively challenge China
directly in the South China Sea and over Taiwan, possibly leading to more
standoffs and close calls between U.S. and Chinese forces in maritime hot spots.
U.S. economic efforts to directly counter China's Belt and Road Initiative, in
contrast, will face much greater limitations, as Beijing leverages joint economic
access and partnership deals with powers big and small to dilute U.S. alliances.
Despite imposing tariffs on around $250
billion in Chinese imports, the White House
can still hit China with another round of
tariffs if concessions from Beijing don't
materialize.
! " # $
On trade, temporary truces between Washington and Beijing will be possible
as the two sides negotiate some economic reprieve, but the key word is
"temporary": The gulf between U.S. demands for deep structural reform in
China's economy and the reality of what Beijing is willing to offer without
compromising its critical industrial technology strategy and stability at home is
simply too wide to allow for a more comprehensive and enduring deal to emerge
between them. The United States has already imposed tariffs on roughly $250
billion in Chinese imports. Frustrated by the limited concessions it will be able to
extract from Beijing, the White House can still blast China with another round of
tariffs targeting a remaining $267 billion in imports.
Potential export controls on "dual-use"
targets will prove highly disruptive to manycorporations.
! " # $
U.S. economic pressure against China will also extend well beyond tariffs. U.S.
tech firms will face more regulatory oversight as the United States tries to restrict
Chinese access to dual-use technologies and scrutinizes the U.S.-China supply
chain for national security vulnerabilities. Potential export controls on "dual-use"
targets, from high-performance chips to general artificial intelligence research,
will be highly disruptive to many corporations. The United States has already
been erecting barriers to Chinese investment and research in strategic sectors,
but it will also be heavily lobbying other countries — particularly Japan, Canada,
European nations, Australia, New Zealand, South Korea and Taiwan — to
downgrade their ties with major Chinese tech companies, like Huawei and ZTE,
that will be branded as a critical national security risk to their countries.
Timing is key: 2019 marks the rollout of
revolutionary fifth-generation
telecommunications technology in the
developed world.
! " # $
The next two years will bring a game-changing level of speed and connectivity
to underpin transformative technologies, like the "internet of things," virtual and
augmented reality, artificial intelligence processing, autonomous vehicles, and
telemedicine — which are already areas of intense U.S.-Chinese competition. And
since Huawei and ZTE are two among a small handful of technology companies
that have developed the technological infrastructure and standards around 5G,
the U.S. government will do whatever it can to prevent its biggest strategic
competitor from embedding itself deep inside the economic nervous systems of
itself and its allies. That growing imperative will naturally add fuel to an already
building fire between the state and the corporation in several advancedeconomies as multinational tech firms with deeply layered supply chains try to
resist a rise in regulatory handicaps to business models that rely on open trade
and cross-border data flows.
Any kind of global consensus on the
priorities and methods needed to govern
cyberspace will remain elusive in 2019.
! " # $
Intensifying great power competition in cyberspace will only aggravate state-
corporate friction over policy. As the biggest target of cyberattacks, the United
States is moving down a more offensive path, with China and Russia squarely in
its sights. (The lead-up to the 2020 U.S. presidential race will draw additional
attention to the cyberthreat posed by China, in particular.) A growing trend can
be seen in Western countries where governments will rely on heavy fines and the
buildup of consumer lawsuits to hold corporations accountable for large-scale
data breaches. Calls among major powers to develop global norms for
cyberspace will grow more urgent, but consensus and enforcement for any such
agenda will remain elusive given widely divergent positions among the United
States, Europe, Russia and China over the priorities and methods needed to
govern cyberspace.The Global Headwinds of U.S. Trade Pol Outside of the tight U.S. economic focus on China, the looming threat of U.S. auto tariffs and a showdown between the United States and other major powers at the World Trade Organization (WTO) will reverberate throughout the global
economy. The White House's economic policy, while prone to the machinations of rival ideological camps, remains largely driven by an interest in reducing trade deficits through bilateral negotiations. The U.S. administration is also not afraid to use heavy-hitting tactics as leverage. Even as the White House threatens tariffs on auto imports — a major driver of the U.S. trade deficit — in the name of national security, it will not settle on trade deals that fail to include significant concessions in markets like agriculture, where U.S. exporters are more competitive. The United States will also use bilateral trade agreements to discourage U.S. trading partners from signing free trade agreements with China (Canada's pursuit of such a deal will test the credibility of that tactic).
The finalization of the United States-Mexico-Canada Agreement (USMCA), which already includes greater protections for U.S. auto manufacturers and quota provisions, will largely insulate Mexico and Canada from the threat of U.S. auto tariffs. A diminished economic threat to North American trade will reduce urgency from the U.S. Congress to impose legislative checks on White House trade policy.
Germany has the most to lose from a trade
battle with the United States over autos but
won't be able to force the European Union —
and France in particular — into making
concessions on agriculture to satisfy the
White House.
! " # $
Japan runs a good chance of mitigating the threat of U.S. auto tariffs through a
limited trade deal with the United States given the agricultural concessions it
made in its free trade agreement with Canada and in the Comprehensive and
Progressive Trans-Pacific Partnership in 2018. South Korea will also likely agree
to quotas to fend off auto tariffs. In contrast, the prospects for a comprehensive
U.S.-EU trade resolution in 2019 look outright dismal. Germany has the most to
lose from a trade battle with the United States over autos but will not be able to
force the European Union as a bloc, and France in particular, into making
concessions on agriculture to satisfy the White House. Depending on which
administration trade hawks and pragmatists have the president's ear at the time,
the White House will likely choose between reneging on a truce, imposing auto
tariffs anyway and doubling down on Europe in hopes that it will eventually
drive Brussels to a deal; or tempering its ambitions and focusing instead on
ongoing negotiations over regulations and standards that fall short of formal free
trade talks.
Parallel to these troubled trade negotiations
is a growing confrontation between major
economic powers and the WTO.
! " # $
The World Trade Organization is currently arbitrating a number of nationalsecurity-related cases, including one regarding the U.S. justification for imposing
tariffs on steel and aluminum in early 2018. The White House will make an
example of these cases to argue that the multinational body has no right to
arbitrate matters of national security in the first case. Should the White House
win this argument, it could make it easier for other states to erect protectionist
barriers in the name of national security.
Should the White House lose, the decision will only add to its building crusade
against the WTO's credibility. To be clear, Congress has the authority to prevent
an outright U.S. withdrawal from the WTO, which would upend the global
economy. But the United States does have the means to paralyze the
organization's dispute resolution process. Because of the United States'
continued block on new appointments, by December 2019 the appellate body
risks falling below the minimum three members required to rule on cases.
This form of protest by the United States, which preceded the presidency of
Donald Trump, is designed to spur support from the European Union, Japan,
Canada and other major trading partners for WTO reforms that would speed its
rulings and clarify jurisdictional boundaries as the United States tries to prevent
the body from stepping into sovereign trade territory. It's also intended to get the
WTO to hold China and other developing nations more accountable for trade
abuses including state subsidization and intellectual property theft. Relatedly, a
WTO panel on a case brought against the European Union by China, which is
seeking recognition as a market economy, will wrap up in 2019. If the European
Union loses this case, it will add momentum to the U.S. argument that the WTO
is unfit to regulate China on trade.
An increasing number of influential
countries are pushing for WTO reforms to
speed up the organization's rulings and
clarify jurisdictional boundaries to limit
forays into sovereign trade territory.! " # $
But U.S. demands for reform will be a lot to ask from the slow-moving and
fractious multinational organization that's ruled by consensus. There's a real
threat that the United States will grind the dispute settlement process to a halt, a
scenario that would drive economic powers back into bilateral negotiations to
sort out their differences as they did under the General Agreement on Tariffs and
Trade, the pre-WTO system that governed global trade in a geopolitical climate
oozing with uncertainty.
The Global Energy Outlook
A collapse in oil markets is unlikely in the first half of 2019 as sanctions
diminish Iranian oil exports and pipeline constraints limit U.S. production
growth. But that supply picture will shift significantly in the second half of the
year when U.S. pipeline capacity expands. Saudi Arabia and Russia will remain
highly reactive to any signs of oversupply that could send oil prices into a
tailspin. Iran still will be able to export about 1 million barrels per day for around
the next five months under limited sanctions waivers, and there's potential for
Libya and Iraq to sort out internal political differences long enough to notably
affect the market. At the same time, the potential of an internal meltdown
decreasing production in Venezuela and discord in the Persian Gulf impeding
tanker traffic in the Strait of Hormuz will be closely watched for more acute
supply disruptions.The United States, meanwhile, is preparing to shake up global liquefied natural gas (LNG) markets. By the end of 2019, the United States will join Qatar and Australia as one of the world's largest LNG exporters. The broader geopolitical effects will take several years to play out as a more competitive LNG market drives short-term contracts and gas-on-gas pricing, particularly in Asian markets with rapidly growing demand. U.S. trading partners under siege by the White House will try to leverage increased purchases of U.S. LNG to temper trade
frictions, while Eastern European powers will use U.S. LNG purchases to better
insulate themselves from Russia.
Slow and Steady as She Goes for the Glo
EconomyWhen we step back and look at all the factors likely to drive instability in the global economy in 2019, there is cause for concern, but not necessarily panic. Growing levels of corporate and sovereign debt, slow growth in workers' incomes, demographic stresses and building political constraints to structural reform make a troubling backdrop to the longer-term economic outlook. Nonetheless, the biggest threat to the U.S. economy from White House trade policy — the collapse of NAFTA — has been mitigated. The potential for more U.S. tariffs on Chinese imports and on U.S. auto imports from outside North America will create localized, sectoral pains but will have a limited impact on the U.S. economy and global economy at large. The White House will point to stable U.S. economic growth to justify an aggressive approach on trade, though the stimulant effects of U.S. tax cuts and fiscal spending will wane in the next few months and keep U.S. monetary tightening on a relatively moderate course.
As long as U.S. economic growth remains relatively stable, U.S. importers struggle to find cheap alternatives to Chinese products and American consumers continue to tolerate slightly higher prices on Chinese goods, China will be able to weather the economic blows from its enduring competition with the United States while relying more heavily on fiscal adjustments at home to maintain stability.
In Europe, a no-deal Brexit scenario can still be averted, even if narrowly. Even as the Italian government and European Commission will avoid escalating their confrontation into a systemic crisis, the fragility of Italy's banking sector will remain the biggest risk to eurozone stability. The European Central Bank will implement its shift toward monetary tightening slowly and cautiously as the Italian risk hangs over the eurozone and as economic expansion in Europe slows overall.
Emerging markets will remain under strain
from a strong dollar, weak currencies, high
inflation, heavy import bills and domestic
political constraints on economic reform.
! " # $
An International Monetary Fund (IMF) bailout agreement is preventing the
Argentine economy from collapse, but is also raising the potential for a more
fiscally lax Peronista comeback in October elections. Turkey will have a bit more
political room to pursue light reforms in 2019 while trying to prevent the more
controversial aspects of its foreign policy from aggravating economic stability at
home. Pakistan is cobbling together IMF and foreign assistance to avoid a
balance-of-payments crisis, while the Indian government will prepare for spring
elections by avoiding big trade concessions and pressuring the central bank to
keep monetary policy loose. Mexico's new government was spared a NAFTA
nightmare but will drive up political risk for investors with an aggressive populist
agenda. And while smaller Asia-Pacific economies, including Thailand, Vietnam,
Malaysia and Taiwan, will be caught in the crosshairs of the U.S.-China trade
battle, they are also among the first places that U.S.-based companies in China
looking to diversify supply chains will consider as the competition between the
economic giants endures.
Related Forecasts
These Stratfor analyses provide additional insights for the year
ahead
Amid a high-stakes race for technological supremacy, global
powers will grapple with the challenge of establishing artificialintelligence governance and ethical norms.
The United States, China and Russia will accelerate efforts to
militarize space in the absence of international standards to regulate
space conduct.
Even as the great power rivalry with China and Russia pushes the
United States to downgrade its military commitments in Africa and
the Middle East, a U.S. campaign against Iran along with persistent
terrorism and proliferation concerns will fight for U.S. attention and
resources.
Anti-corruption is an increasingly popular and potent political
weapon that can be harnessed by Western governments and
strongmen alike to shape policy at home and abroad.
Great powers will compete over lucrative arms contracts around
the world.
A divided and less accommodating Congress will have mixed
results for U.S. foreign policy.
A longer-term global energy transition toward renewables will
continue in 2019, with corporations assuming more leadership in this
shift.
Key Dates to Watch
Middle East and North Africa
The Middle East and North Africa is the world's crossroads. It
encompasses the Arabian Peninsula, the mountains of Iran, the
plains of Turkey, the deserts of the Levant, the lands north of the
Sectionplains of Turkey, the deserts of the Levant, the lands north of the
Section
Sahara and all coasts in between. The story of the region, as is so
Nov 19, 2018
often the case of places stuck between foreign players, is the story of
| 20:48 GMT
8 mins read
Key Trends for 2019
The U.S.-Iran Collision Course
The U.S.-led sanctions campaign will hurt Iran, but it won't lead to the collapse
of the Iranian government even as the country's economy struggles. By
increasing sanctions, the United States hopes to coerce Iran to return to the
negotiating table. This will not work; while Iran is known for its political feuding,
its parties will prioritize regime stability over their usual politicking. Moreover,
sanctions have intensified popular unrest, which strengthens the political capital
of conservatives and hard-liners against the administration of moderate
President Hassan Rouhani. Furthermore, Iran's assertive intelligence and
security apparatus will be empowered by the need to deepen Iran's defensive
strategy in the face of the intensifying pressure.
Iran will do what it can to retaliate against
its aggressors, stopping just short of
provoking a conventional military response
— for now.
! " # $
Tehran will be tempted to retaliate by harassing U.S. and allied vessels in the
Persian Gulf, conducting ballistic missile tests or resuming its nuclear activities,
but it will only do so when absolutely necessary. Instead, Tehran will more
readily employ cyberwarfare, conduct covert operations, or use its key regionalproxies to strike back at the United States, Israel and the Gulf states. Iran wants to avoid provoking a conventional military strike against itself, but as political support from the European Union weakens over 2019 and economic guarantees are replaced by political rhetoric, Tehran will be more willing to engage in sharper retaliatory measures. Learn more about Iran's strengths and vulnerabilities.
The United States Bolsters Regional Allies
In carrying out its regional strategy, which hinges on containing Iran, the
United States will lean on two sets of allies with similarly aligned objectives. The
first set includes allies most concerned about Iran and willing to embrace hard-
hitting anti-Iranian policies: Israel, Saudi Arabia and the United Arab Emirates.
These countries are rapidly overcoming decades of mistrust and conflict to
better coordinate against Tehran in cyberspace, in enforcing sanctions, and even
militarily.
The United States will rely on its allies in
the Persian Gulf to assist with Washington's
Iran containment strategy.
! " # $
The second set of allies, Kuwait, Oman and Qatar, is more loosely aligned and
less willing to take a tough position on Iran. These countries can provide
strategic, diplomatic and economic value to the United States in certain regional
conflicts and crises. An improved alignment between them could reduce the
intensity of the Qatar blockade, but the underlying conflict among members of
the Gulf Cooperation Council will endure. Learn more about how these
countries will attempt to demonstrate their strategic utility to the United States.
Spotlight on Saudi Arabia
Saudi Arabia will have to manage growing concerns over Crown Prince
Mohammed bin Salman throughout 2019. In the wake of exiled Saudi journalist
Jamal Khashoggi's murder, the crown prince's actions will come under increasing
international scrutiny. Although he remains well entrenched within the Saudi
monarchy, Crown Prince Mohammed's dominant position still depends on
support from his father, King Salman, and quiet resistance will continue to build
within the royal family. Some of Riyadh's key allies will limit military support andforeign direct investment to Saudi Arabia, but crucial relationships are unlikely
to shift.
The stain of the Khashoggi affair will linger
on the House of Saud into 2019.
! " # $
Riyadh will continue to advance its Vision 2030 goals over the coming year,
easing austerity measures in response to positive economic signs — higher oil
prices in 2018, the opportunity to make up for decreased Iranian oil exports, and
a relatively successful non-oil revenue generation strategy. This means the
kingdom can avoid making hard structural changes to the Saudi economy,
especially the labor markets. Complaints over housing, salaries and quality of life
will compel the state to use its fuller royal purse to douse grievances with cash.
Read more about the troubles facing Saudi Arabia in the wake of the Khashoggi
affair.The Syrian Cauldron Could Spill Over In the closing stages of the Syrian civil war, five key powers — Turkey, Russia, Iran, the United States and Israel — are competing for influence and control. Moscow and Tehran firmly back Syrian President Bashar al Assad but differ not only in the levels of support they provide but also in their overall objectives.
Russia has used the Syrian conflict to expand its footprint in the Middle East and will be protective of its gains and materiel, though Moscow has little desire for open conflict with Turkey, the United States or Israel. Iran, on the other hand, will be more aggressive in its support for Damascus, especially in opposition to Ankara and Washington. Tehran will also continue to build up its forces inside Syria as a deterrent to Israel and as a means to supply Hezbollah, its powerful ally in nearby Lebanon. Israel will attempt to foil Iran's plans but is intrinsically wary of sparking an unintended conflict with Russia.
Turkey and the United States remain opposed to Assad's rule, but despite being
NATO allies, they will pursue their own agendas in Syria. The United States is
focused on eradicating remnants of the Islamic State in the country, though
Washington more broadly seeks to remove Iranian influence from Syria as part of
its anti-Iran strategy. Challenging Iran in Syria creates tension between the
United States and Russia — Moscow cannot and will not force out Iran. Despite
efforts to deconflict, the possibility of a military incident involving U.S. and
Russian assets is not beyond the realm of possibility.
The possibility of a breakout conflict
involving the major powers overseeing the
Syrian conflict is conceivable in 2019.
! " # $
Turkey, for its part, will maintain its focus on containing Kurdish forces in
Syria. This is problematic for the United States, which uses the Kurdish People's
Protection Units (YPG), a group Ankara sees as a terrorist organization, as an ally
against the Islamic State and as a proxy against Iran. In Syria's northwest,
Turkey's pledge to protect Idlib province could stretch Ankara's credibility as a
local partner, especially given Damascus' stated goal of total reconquest. Idlib
could well become a flashpoint among Turkey, Iran, Syrian loyalist forces and,
more remotely, Russia. Given the opposing interests in Syria, the potential for
accidental escalation or even a state-to-state confrontation in 2019 is higher than
ever, though every power will take steps to avoid this. Learn more about the
possibilities for state-to-state confrontation and what 2019 will hold for the
Syrian conflict.
Handling Turkey's Fragile Economy
The biggest challenge facing Turkey in 2019 will be its distressed economy. As
well as managing record inflation, President Recep Tayyip Erdogan will have tocontend with a privately held corporate debt bill roughly equal to a quarter of
the country's gross domestic product — all while avoiding another lira crisis.
Erdogan will be politically compelled to broaden his support base ahead of local
elections in the spring, courting financially concerned Turks from across the
electoral spectrum, some of whom have been turned off by the president's
nationalist policies. Turkey's brittle economy also weakens Ankara's position
when it comes to dealing with key partners in the West. The U.S. relationship
with Turkey is increasingly fractious thanks in part to Ankara's growing ties with
Russia and Washington's support for the YPG in Syria.
President Recep Tayyip Erdogan will have
his work cut out in 2019 to stabilize the
Turkish economy.
! " # $
Because of its vulnerability to U.S. economic pressure, Turkey will attempt to
shore up foreign investment and maintain stable economic relations with
Europe. However, Turkey's historically complex relationship with the European
Union will complicate that effort. Beyond stabilizing its economic situation,
Ankara will continue to pursue other core imperatives in 2019, including the
containment of autonomous Kurdish movements in Turkey's former Ottoman
domains. Ankara will exert whatever influence it can in northern Syria and
continue military strikes against Kurdistan Workers' Party positions in northern
Iraq. Learn more about Turkey's precarious economic position going into 2019.Related Forecasts These Stratfor analyses provide additional insights for the year ahead
Saudi Arabia will continue efforts to build up its own defense sector
so it won't have to rely on foreign arms suppliers.
Algeria's government will batten down the hatches in 2019 in
advance of a presidential election that risks destabilizing the
country's fragile plan for succession.
Israel will continue to seek investment for its infrastructure
development projects, but taking Chinese money will have U.S.
consequences.
The Khashoggi Affair could lead the United States to rethink its
contribution to the Saudi-led war in Yemen, with consequences that
could influence its course.
An unpopular tax bill contributed to Jordan's recent economic
protests, but there is no shortage of issues that could trigger the next
political crisis in the Hashemite Kingdom.
Iran's missile arsenal poses a key threat to Israeli security —
especially given Tehran's proclivities for supplying arms to regional
proxies — and Israel will take whatever action it can to mitigate the
risk.
The new Iraqi government will struggle to strike a balance between
competing external influences, including Iran's.
Competition between France and Italy complicates Libya's already
formidable struggle to unite its rival factions.
Key Dates to Watch
January: The inaugural meeting of the Middle East Strategic Alliance (MESA)
— dubbed the "Arab NATO" — could take place.January: The heads of state of the African Union will hold a summit in Egypt.
Feb. 17-22: Financial Action Task Force (FATF) plenary meeting in Paris at
which Iran's status will be discussed.
March: Local elections will be held in Turkey.
April: The presidential election in Algeria will be held.
August: Annual Iranian naval drills take place in the Strait of Hormuz.
November: Israeli parliamentary elections must be held by the end of the
month.
Asia-Pacific
Unknown Date: 2020 Iranian parliamentary elections will be announced.
The Asia-Pacific is home to more people than any other region.
Centered on the western rim of the Pacific Ocean, this region
includes the easternmost countries of continental Asia as well as the
archipelagos
Section that punctuate the coast. Several of these countries,
most notably China, experienced rapid economic growth in the
Nov 27, 2018
| 13:49 GMT
second half of the 20th century, giving the region a new sense of
8 mins read
Key Trends for 2019
China Weathers the Trade Storm
Beijing will try to keep its lines of communication with Washington open on
trade by offering to buy more U.S. goods and selectively lower barriers to
investment, but its concessions won't meet U.S. demands for structural
economic reform. Still, China will only respond in kind to U.S. measurestargeting Chinese firms and entities and not take any blanket punitive action
against U.S. businesses. Beijing will also deepen public-sector reforms by
soliciting foreign investment for its financial, auto and energy sectors.
Furthermore, it will ease restrictions in sectors that align with China's prime
interests, such as medical services and education.
China's refusal to concede to U.S. demands
will prolong the ongoing trade dispute.
! " # $
The United States will maintain its demand that China ease state support for its
tech sector, but that will only compel Beijing to accelerate its efforts to ease
China's dependence on foreign technology and diversify its supply chain —
thereby necessitating increased state support for the sector. Needless to say,
China's refusal to bow to U.S. pressure on tech will prolong their trade dispute.
At the same time, China will strive to acquire technology and cooperate on
sector-specific activities with advanced tech powers like Japan, Israel, Taiwan
and the European Union, but such activities will face increased scrutiny over
concerns about Chinese investment and industrial espionage. Read more on
China's efforts to reform its state sector.Beijing Battens Down the Hatches Because the extended trade war threatens the economy in China's coastal regions (and, thus, social stability), Beijing will ease its tight regulations designed to contain debt and protect the environment while upgrading infrastructure, generating credit and offering direct subsidies to boost growth. China will also
carefully manage the yuan's value to mitigate the damage to exports, allowing it
to cope with reduced growth. But an accumulation of debt and the fragility of
the housing market will limit Beijing's ability to use massive credit flows and
sharp currency devaluations as a means of economic stimulus.
China will have to rely more on fiscal
stimulus — including reducing taxes — to
encourage consumption and private sector
activity.
! " # $
It will also encourage the increased use of the yuan in currency swaps and
in trade with countries participating in the Belt and Road Initiative to mitigate
currency volatility. And to keep hedging against U.S. trade pressure, Beijing will
pursue bilateral and regional free trade agreements, such as the Regional
Comprehensive Economic Partnership in the Indo-Pacific region and trilateral
negotiations with Japan and South Korea, all while forging ties with new export
markets along the Belt and Road and in Africa. Southeast Asia's emerging
economies, meanwhile, will be ready to lure any factories that relocate from
China amid the trade war. Threats to the overall regional supply chain and
external financial volatility could also present challenges to countries with higher
debt or current account deficits, such as Malaysia, Indonesia and the Philippines.
Learn more about why state-owned enterprises are so important to China.Great Power Competition in the Asia-Pacific As it tries to chip away at the U.S. regional alliance structure, China will continue its conciliatory outreach to Japan, India and the member states of the Association of Southeast Asian Nations (ASEAN) by privileging dispute resolution efforts and economic partnerships while also making overtures to Australia,
whose April elections could foster some rapprochement. At the same time,
Washington will bolster its naval presence in the South China Sea and the Taiwan
Strait and further challenge the One China principle by elevating Taipei's status
at international associations and regularizing arms sales, naval patrols and high-
level visits.
The U.S. Navy will be more prevalent in the
South China Sea and the Taiwan Strait, which
will provoke China to adopt a more robust
military posture.
! " # $
In response, China will adopt tougher naval and aerial postures to assert its
territorial claims, increasing the chances of accidents involving the U.S. military.
The United States is considering making a naval port call in Taiwan — an event
that would trigger a more direct Chinese military response. Japan,
India and Australia will increase security cooperation with Washington, but they
will refrain from joining U.S. freedom of navigation operations in the South
China Sea or patrols in the Taiwan Strait. Elsewhere in the region, U.S.-ASEAN
military exercises and U.S.-Vietnamese defense cooperation will complicate
Chinese efforts to limit the further regional expansion of U.S. influence. Find out
more about Taiwan's role in U.S.-China competition.
A Fraying Consensus on North Korea
The United States is intent on extracting tangible concessions from North
Korea in 2019. But this is also the year that Pyongyang hopes to squeeze the most
out of the Trump presidency before the United States becomes distracted by its
election cycle. Given the obviously high stakes of open warfare, neither will
deliberately scuttle the dialogue. North Korea will carefully offer tangible pledges
but will also expect concrete progress on sanctions relief or toward a peace deal;throughout the process, it will obfuscate and delay where it can. Pyongyang will
also insist on assurances that any bilateral deal will have staying power beyond
the current administration.
The United States will hesitate to extend an
economic lifeline to North Korea by lifting
sanctions, but time is on Pyongyang's side as
the international consensus on maintaining
sanctions unravels.
! " # $
For the moment, Washington's veto power on the U.N. Security Council will
allow it to block any effort to repeal the multilateral measures, even as China and
Russia push for the international community to reward North Korea for its
cooperation. At the same time, the United States will pressure others to fall into
line on sanctions by shaming transgressors and threatening secondary sanctions
against those who deal with Pyongyang. Complicating matters, inter-Korean
detente is reaching the point where it cannot proceed much further without
sanctions exceptions — something the United States will only approve after
careful consideration. The growing discrepancy between the pace of the inter-
Korean dialogue and the pace of the U.S.-North Korean discussions will leave
room for China to extend its influence on the Korean Peninsula. Overall, while
swings towards breakthroughs and breakdowns will occur throughout the year,
North Korea will still maintain possession of many elements of its hard-won
nuclear program at the end of 2019.Moving the Belt and Road Forward With its access to U.S. markets under strain, Beijing will redouble its efforts to find new export markets and partners through the Belt and Road Initiative. Washington will work principally with Japan and Australia to offer alternative infrastructure investments to counter China's ambitions in the Indo-Pacific, but
Beijing will temper potential partners' concerns regarding financial sustainability, political influence and national security threats by attracting third- party investors. It will also work to undermine Washington's regional initiatives by pursuing joint projects with middle powers, including Japan, the European Union and India. Take a more in-depth look at the resistance to the Belt and Road Initiative.
A Japanese Awakening
Secure in his position through 2021, Japanese Prime Minister Shinzo Abe will
aim to pass constitutional reforms before the end of 2019 while offsetting the
economic impacts of a consumption tax hike through public works spending,
incentives for private sector investment and tax exemptions for certain products.
And though Russia and Japan will continue to negotiate over the disputed Kuril
Islands, a larger standoff between Moscow and the West will scuttle any hopes of
a deal.
When it comes to trade, the United States
and Japan have an arrangement for now, but
much will depend on how far Washington
pushes Tokyo.
! " # $
Meanwhile, Tokyo will grant concessions that will partly placate U.S. trade
concerns — so long as the U.S. push for agricultural access does not exceed the
limits outlined in the Comprehensive and Progressive Agreement for Trans-
Pacific Partnership (CPTPP) and EU-Japan trade deals. If Washington pushes
further, Tokyo will experience a backlash from its powerful farming lobby —
although it will weigh whether to sacrifice its agricultural sector to avoid U.S.
tariffs on its critical auto sector. Beyond that, Tokyo will also resist U.S. attempts
to limit any future Japanese trade deal with China. Read more on Japan's
calculations on automotive and agricultural trade in the face of U.S. pressure.Related Forecasts These Stratfor analyses provide additional insights for the year ahead
The U.S.-China trade war could benefit Vietnam economically but
will complicate Hanoi's delicate balance between the two.
China's large debt accumulation will hamper Beijing's efforts to
stimulate the economy.
China's tech sector will become an increasing concern for the
United States, particularly as the two battle over artificial
intelligence.
Key Dates to Watch
Early 2019: Release of a World Trade Organization panel report on China's
challenge of the European Union's refusal to grant China market economy
status.
Early 2019: Next Trump-Kim summit may occur.
Jan. 1: Date that the United States could possibly raise the tariff rate on $200
billion worth of Chinese imports to 25 percent.
Jan. 14: First day the United States can hold formal trade deal talks with
Japan.
January: First round of CPTPP's tariff cuts will take effect.
March: Joint U.S.-South Korean military exercises Foal Eagle, Double Dragon
and Key Resolve normally held.
May 18: Australia's Senate elections must be held before this date, with House
of Representative elections due by November.
June 28-29: A G-20 summit is scheduled to be held in Osaka, Japan.August: U.S.-South Korean Ulchi Freedom Guardian military exercise
Europe
normally held.
To the west of Eurasia lays Europe, a region predisposed to
division. It is surrounded on nearly all sides by islands and
peninsulas that make it difficult for Europe to cohere. The northern
half
Section of the continent, moreover, sits on a plain whose short,
meandering
Nov 27, 2018 rivers tend to empower countries without forcing them
| 20:43 GMT
to work with others. The southern half is situated on more
8 mins read
Key Trends for 2019
Risk in the Eurozone
Italy will remain the main source of financial risk within the eurozone. Rome
could make cosmetic changes to its fiscal policies to delay sanctions from the
European Commission over its 2019 budget, but the real threat to the country's
financial stability will come not from Brussels but from the financial markets.
Rome's fiscal policies will create uncertainty among investors about the
sustainability of its debt.
If Italy's political and financial turbulence
continues, Southern European countries
could suffer increased borrowing costs.
! " # $
The billions of euros in Italian debt held by its banks leaves them
vulnerable. Should those banks require assistance, Rome may have no choicebut to negotiate a rescue program with the European Union. At the same time, disputes within Italy's coalition government could prompt early elections, adding to political uncertainty. Italy's political and financial turbulence will increase the chances of higher borrowing costs and of banking uncertainty in other Southern European countries. Read more about what's motivating the Italian government's policies.
The Year of Brexit While there is no shortage of disruptors around the Brexit process, London and Brussels will work to minimize the economic effects of the United Kingdom's exit from the bloc. London's first choice will be to leave with a comprehensive exit agreement, but it may take more than one vote to persuade the British Parliament to approve it. If lawmakers ratify the deal, the United Kingdom will
remain in the EU single market in 2019. But even if Parliament rejects it, London
and Brussels will still reach temporary agreements, or in some cases act alone, to
contain economic disruptions as much as possible. Such measures could include
extending the negotiation period under Article 50, to delay Britain’s exit. Still, a
British parliamentary veto would throw the logistics of the bilateral relationship
(from trade to commercial flights to migration) into flux.
To make Brexit even more interesting, the
sitting British government could fall at any
point in the negotiations and a new election
could be scheduled.
! " # $
No matter how Brexit happens, the United Kingdom and the European Union
will discuss a permanent post-withdrawal trade arrangement, and London will
hold free trade talks with other countries, including the United States.
Considering their complexity, those negotiations will likely extend beyond 2019.
Read about why fragmentation in Europe's financial system will grow after
Brexit.
Trade in Focus
The European Union will not sign a comprehensive free trade agreement with
the United States in 2019, but it will be willing to discuss a more modest
agreement that covers industrial goods. Brussels will also be open to talking
about the elimination of some nontariff barriers to trade. With these gestures,
the bloc will try to dissuade the United States from introducing higher tariffs on
vehicles produced in the European Union. Should the White House raise the
tariffs, the union would retaliate with its own countermeasures. At the same
time, it will try to keep the United States engaged in multilateral forums such as
the World Trade Organization, and it will side with the White House when itpressures China on issues such as state subsidies and foreign investment
limitations.
The EU will continue to seek opportunities
with countries such as Australia and New
Zealand, South America's Mercosur trading
bloc, and even look to open new export
markets in South and East Asia.
! " # $
Brussels will also see Beijing as a counterbalance to the United States when it
comes to defending multilateralism. But large economies such as Germany and
France will resist China's penetration into Europe — especially in sensitive areas
such as technology and infrastructure — while smaller states will welcome
Chinese investment as an opportunity to boost their economies. In other trade
issues, the European Union will hold talks with Australia and New
Zealand, seek to complete negotiations with South America's Mercosur bloc, and
look to open new export markets in Asia. Issues such as agriculture and
geographic descriptors for food products will prove difficult to solve, but the
union will try to make as much progress as possible in its trade talks. Read more
on EU-U.S. trade disputes.The Battle for the EU Leadership Elections for the European Parliament in May will produce a fragmented legislature; pro-EU parties will retain control, but nationalist and Euroskeptic forces will have a strong following. These divisions will, in turn, make it harder to pass legislation. The selection of the new European Commission president will
follow and lead to ideological disputes within the bloc. A conservative
commission would probably focus on such issues as trade agreements and
reducing immigration from outside the bloc, while a progressive one would more
likely focus on ensuring greater economic cohesion within the bloc.
Regional disagreements will slow the pace
of policymaking and reduce the possibility of
major reforms.
! " # $
Southern Europe will push for a commission that promotes higher spending
and deeper risk-sharing across the bloc, while Northern Europe will push for a
body that promotes fiscal discipline and risk reduction. EU governments will also
select a new European Central Bank president. The south will push to continue
the bank's expansionary monetary policies, and the north will push to reverse
some of them. The regional disagreements will slow the pace of policymaking,
reducing the chances of significant reforms. Read more about the competition
for EU institutions.Trouble in Germany and France As Germany's governing parties seek to set themselves apart, the country's politics will be stretched further to the left and right, hollowing out the center. Conflict within the government will reduce its efficacy and could lead to early elections. A new vote would again produce a fragmented parliament and lead to
complex coalition talks, further reducing Berlin's EU leadership role. In France, the government's push for institutional and economic reform, including a drive to overhaul the pension system, will lead to protests, some of which will disrupt the economy. Paris will succeed in implementing most of its plans, but citizens will be increasingly vocal in rejecting their government's policies. Domestic issues and France's dependence on others to get things done in the bloc will limit Paris' influence on Continental affairs. Read more about the implications of political uncertainty in Germany. The East-West Divide Countries in Central and Eastern Europe will take advantage of the global environment to preserve, and potentially deepen, their political and military ties to the United States. The White House will look to Poland and Romania to help increase its presence or even to serve as hosts for American missile systems as the arms race with Russia intensifies. At the same time, Poland, Hungary and Romania will selectively challenge EU institutions and rules, while also making sure not to do anything that puts their memberships in the bloc in jeopardy. These countries will also look to deepen cooperation with their neighbors on issues that vary from energy diversification to infrastructure, and they will get together to resist cuts in EU agricultural and development funds. Read more on Poland's geopolitical strategy.
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