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November 9, 2020

Ethiopia conflict escalates as army sends more troops to Tigray region. Ethiopia’s dispute with the northern Tigray region escalated on Nov. 5 with reports of heavy shelling and the army’s deputy chief declaring that the country had entered into “an unexpected war” and was sending more troops to the area. (Washington Post)

Brexit: Watchdog warns of 'significant' border disruption. U.K. trade with the EU faces "significant disruption" when the Brexit transition period ends in January, a government spending watchdog has said. (BBC)

Biden would want the US to rejoin Trans-Pacific Partnership, leading China watcher says. Joe Biden, if he wins the presidential election, would want the U.S. to rejoin the massive trade deal known as the Trans-Pacific Partnership, said Graham Allison, Harvard University’s Douglas Dillon professor of government. (CNBC)

EU faces knotty US trade fights no matter who wins in election. It’s no secret that European officials are more in tune with Biden’s stated intent to improve transatlantic relations. But no matter who wins, fundamental disputes that erupted—or in some cases, merely worsened—under Trump may not be quick or easy to resolve. (Business Mirror)

US adversaries revel in post-election chaos. From Iran to Venezuela to Russia, once-chided national leaders enjoy the sight of U.S. democracy in action. (The Guardian)

China’s problematic lending comes home to roost. Pressure is mounting for China to join international debt-management initiatives. (Interpreter)

Chinese companies waiting twice as long for payments as in 2015. China’s business owners have spent a record amount of time collecting money owed to them this year as clients, led by large companies and local governments, put off payments in the wake of an economic slowdown, reported the Financial Times. (HSN)

Boycott call tests France-Turkey trade relations. The Turkish leader has led calls for a boycott of French goods as tensions between Ankara and Paris escalate over cartoons of the Prophet Muhammad. Here’s what's at stake for the two economies. (DW)

Saudi Arabia angers India and Pakistan over Kashmir status. Saudi Arabia has angered both India and Pakistan after leaving Kashmir out of its map of the two countries on its new banknotes, leaving both countries confused and outraged at a move that gives the disputed region symbolic independence. (MeMo)

Simplifying customs procedures in the post-Brexit period. With the Brexit deadline fast approaching, this is the time for traders to embrace the U.K.’s customs simplifications for their future business activities. (Global Trade Magazine)

Exporting to China: What you need to know. By many measures, China is the largest economy in the world. That makes it an undeniable force in international trade. Yet, this formidable giant gives many small and midsize exporters pause. (Shipping Solutions)

Kosovo President Thaci resigns to fight war crimes charges. Kosovo President Hashim Thaci, a wartime hero turned politician, resigned with immediate effect on Nov. 5 after learning that a tribunal in The Hague had confirmed a war crimes indictment against him. (Reuters)

Applying the Pareto Principle for personal and professional success. Why it matters, and the practical implications for risk managers and an as individual managing your own personal life. (Risk Management Monitor)

 

 

 

European Service Sector Taking a Hit

Chris Kuehl, Ph.D.

The latest round of Purchasing Managers’ Indices from Markit are telling a very obvious story. Data from the manufacturing index have been solid in most of the Eurozone nations and have shown gains in nations where the industrial sector is strong.

German manufacturing growth was actually strong enough to overcome the decline in the service sector. For the rest of Europe, the composite score from the survey fell due to the slip in the service side. The restrictions that have been reimposed to deal with the pandemic have not been as sweeping as the ones that were imposed in the spring; they have been much more targeted to the service side of things.

In April and May, the manufacturing and professional communities were required to shut down in many cases, but this latest effort has been aimed at sectors such as hospitality, leisure, travel, restaurants and events. Retail has been spared the extremes of last spring, but there has been discussion regarding extending the shutdown to all but “essential” retail.

Europe is heading for a double dip recession as far as the service sector is concerned. The manufacturers and the professional sector will likely see growth into the coming year. Although, an extended period of time in lockdown would eventually hit these other areas as well. The expected damage has already manifested because there have been millions of new layoffs and thousands of new business closures.

The additional challenge is that Europe has run out of money that could be used to shield the population from this latest blow. There is already intense resistance to adding more debt to the EU and there is unwillingness on the part of northern governments to help the southern tier states.

The European governments are deeply concerned that “pandemic fatigue” has set in. There have been demonstrations and protests over the last several weeks, and they have been getting more frequent and angrier as the populist parties have been learning to exploit this frustration. The latest announcement from the Italian government may set off some of the most virulent protests. The government has sealed off several regions in the industrial north as well as the southern sectors.

The areas in the north have seen very high infection rates, while those in the south are considered at risk due to the higher levels of poverty and the age of the population. The north has been the center of Italian populism and local political leaders have been highly critical of the current government. This effort may trigger a much bigger set of protests. At the same time, the U.K. has been bracing for similar outbreaks as the country gets set for a second lockdown.

 

 

UPCOMING WEBINARS




 

Three Years for Recovery?

 

GDP in the euro area and the United States will remain 3.5 and 2 percentage points below 2019 levels at the end of 2021, respectively, according to trade credit insurer, Coface.

The firm projects that it will take at least three years to reach pre-crisis production levels. Overall, Coface economists expect a global growth rate of -4.8% in 2020, followed by a recovery of 4.4% next year. The situation is similar with world trade. A projected upswing of 3.5% in the fourth quarter of 2021 compared to the fourth quarter of 2020 would not offset the decline of -13% expected for this year.

According to the Coface projections, of the 20 economies that would generate the strongest cumulative growth in 2020 and 2021, around half are in Asia, including China and Vietnam. The other half of these countries is made up entirely of African countries. At the other end of the spectrum, of the 15 worst performing economies in 2020-21, seven are in Latin America. South Africa and Nigeria also belong to this group.

The risk of unrest in countries that have been severely affected by the coronavirus could increase tenfold, the trade credit insurer said. Coface draws this conclusion from its study of political risks. The connection with the pandemic is significant, the study finds. "In addition to a possible increase in civil unrest, grievances related to COVID-19 could also revive and reinforce pre-Corona social movements such as those in Hong Kong, France and Chile, to name a few." Iran and Turkey are among the countries where political risk has increased the most.

Conflict, social instability and populism are, with various variables, the indicators with which Coface measures political risks and records them in a Political Risk Index. This year, the experts added an index that measures public opinion on how authorities are dealing with the health crisis. The index describes a movement in the opposite direction. The decrease in the risk of conflict at the global level is offset by the increase in the risk of political and social fragility.

Coface analysts found that countries with political and social fragility above the global average, and which are also particularly affected by the health crisis, are more at risk for social upheaval. Analysts noted several Latin American countries (Brazil, Mexico, Peru and Colombia) and South Africa have both a high political and social risk and a high level of exposure to the COVID-19 crisis.

Although they are less affected by the health crisis than the five countries mentioned, China, Russia, Saudi Arabia and Morocco could also be included in this list of countries to watch, according to Coface. According to the indicator for political and social fragility, Chile, India, Argentina and Singapore seem to be less at risk. However, given the severe impact of the health crisis on the lives of their populations, the risk of discontent should not be overlooked, the firm noted.

In the industrialized world, the level of dissatisfaction with the management of the health crisis is greatest in Spain, the USA, Great Britain and France. In Spain and the United States, less than 40% of the population were satisfied. The indicator for political risks is also highest here. However, measures to contain COVID-19 also affect countries that did not exhibit social upheavals prior to the crisis. Tensions could also arise from the impact of the recession on employment, household incomes and inequality. In addition, potential austerity measures likely to follow the record stimulus packages to contain the crisis could mix political and state risks, particularly in emerging markets.

In the case of bankruptcies, Coface had already issued a forecast in the spring that expected a considerable increase in the number of trading partners that are important for Germany. The update also reveals a worrying picture. Globally, over the two years 2020 and 2021, compared to 2019, corporate insolvencies are expected to increase by 32%, for Europe by 22% and the countries of the Asia-Pacific region 29%. Looking at individual countries, there is a strong increase in Turkey (48%), the USA and Poland (44% each), Great Britain (33%), Italy (32%), Japan and the Netherlands (30% each). The insolvency expectations for France and Spain (16% each) and for Germany (11%) are comparatively moderate.

During the month of November, FCIB is offering three country-specific webinars, free to members, on insolvency laws in Brazil, France and Germany. These webinars are a part of series available online to members in the Academy of Global Credit, located in the FCIB Knowledge Center.

 

UK Voters Share Hopes and Fears for Life Outside Brexit

 

As the U.K. prepares to leave the EU at the end of 2020, the nation remains divided on Brexit, according to new research from the British Social Attitudes Survey. The survey carried out by the National Centre for Social Research also finds citizens more politically engaged, with clear expectations about what should happen when the U.K. finally fully leaves the EU.

The consequences of Brexit

After four years of the Brexit process and the parliamentary deadlock in 2019, voters are as divided and polarized as ever on the consequences of Brexit. About half (51%) think the economy will be worse off, compared with 40% in 2015, while the proportion who think the economy will be better off has held steady at around a quarter (23%). Only 22% think it will not make much difference either way, compared with 31% in 2015.

While three-fifths (60%) of remain-voters believe that Brexit will result in Britain having less influence in the world, nearly half (49%) of leave-voters express the opposite view. Around a half (51%) of all voters think that Britain’s ability to make its own laws has been undermined by being part of the EU. No less than 85% of leave-voters express that view compared with just 30% of remain-voters.

Trust in government and interest in politics

Trust in government has fallen away significantly since 2016. Shortly after the referendum, 22% of people said they trust the government most of the time or just about always, the highest level since 2007. By 2019, this had dropped to 15%, the lowest level recorded in over forty years, with more than two times as many people saying they almost never trust government (34%).

In 2019 after the parliamentary deadlock over Brexit, nearly four in five (79%) people said Britain’s system of governing could be improved either quite a lot or a great deal, an increase from 63% in 2014 and the highest level ever recorded.

However, the Brexit process seems to have stimulated people’s interest in politics, rather than encouraged them to switch off from the world of Whitehall and Westminster. Between 1986 and 2013, an average of around three in 10 people (31%) had a great deal or quite a lot of interest in politics. Immediately after the Brexit referendum this increased to around four in 10 (42%) and is still as high as 39%.

Immigration after Brexit

There is widespread support for ending freedom of movement once the transition period is over. Around six in 10 (62%) say that people from the EU should have to apply to live in the UK, while at least as many (65%) believe the same principle should apply to people from Britain who want to live and work in the EU. However, support for ending freedom of movement has fallen back somewhat from the 74% who in 2016 said that EU migrants should have to apply to come to Britain.

Most voters also appear to back the principle of treating migrants the same irrespective of their country of origin. As many as 58% said that it should be neither relatively easy nor relatively difficult for people from France to come to the U.K., while much the same was true of people from Poland (58%), Pakistan (55%), and Australia (53%).

Voters do think that the job someone does should make a difference. However, they do not simply draw a distinction between skilled and unskilled workers. While 80% believe doctors should be a high priority, only 18% say the same of bankers. And while just 19% believe hotel cleaners should have priority, as many as 60% feel that care workers should. The perceived social value of an occupation seems to matter more than skill.

More than half (55%) believe there should either be no minimum salary threshold for those wishing to live and work in Britain, or it should be no more than £15,000.

Professor Sir John Curtice, Senior Research Fellow at the National Centre for Social Research and Professor of Politics at the University of Strathclyde, said: “Our research challenges some of the myths that surround the Brexit debate. Voters did react adversely to the Brexit stalemate - but this reaction was to be found just as much among Remain voters as Leave supporters, while the experience seems to have stimulated rather than depressed voters’ engagement in politics. Meanwhile, although most voters wish to see an end to freedom of movement - including many who voted Remain - the government’s immigration proposals would appear to be rather more restrictive than many voters would like, while there does not appear to be a widespread public clamour for a less strict regulatory regime than the one Britain has enjoyed as an EU member.”

 

 


 

 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations