Strongman economics aren't working for China and Russia. In the battle between strongmen and democracies, elected governments are pulling ahead—at least economically. (Axios)

Another bad sign for China’s economy. Beijing authorities are said to have told state-owned banks to step up intervention in the currency market in a push to prevent a surge in yuan volatility. Senior officials are also considering using tools such as cutting banks’ foreign-exchange reserve requirements to prevent a rapid depreciation in the currency. (Bloomberg)

US banks are making it much harder to borrow money. America's banks have become more reluctant to lend money to businesses and households—an intended side effect of the Fed's rate-hiking campaign. (Axios)

Biden's climate law boosted investment in US manufacturing in first year. Last year, the Inflation Reduction Act was signed into law—one piece of legislation central to “Bidenomics” the administration has touted in the lead-up to the presidential election. (Axios)

Argentina finally hits the panic button. After years of trying to avoid a currency devaluation that would add to soaring inflation and reduce its popularity with voters, the government conceded defeat in that fight on Monday. (Bloomberg)

The UK's grim inflation problem. A run of encouraging data shows the U.S. is on track to cure its inflation problem. The same cannot be said for the U.K., where inflation is proving stubborn. (Axios)

Share of companies nearshoring their supply chains tripled this year. The share of companies making moves to nearshore their production nearly tripled this year, according to McKinsey's annual survey of supply chain leaders, out Tuesday morning. (Axios)

What’s behind the summer of supply chain labor unrest? From port disruptions to UPS and Yellow’s dust-ups with the Teamsters, disputes between unions and employers are a recurring threat to the steady flow of goods. (Supply Chain Dive)

US escalates trade dispute with Mexico over genetically modified corn. The United States has escalated its objections to Mexico’s curbs on genetically modified corn imports, requesting a dispute settlement panel under the North American trade pact, the US Trade Representative (USTR) office has said. (Al Jazeera)

Wall Street is hiking forecasts for economic growth. Gloomy warnings about an imminent recession have given way to calls that the economy is now facing the opposite: accelerating conditions. (Axios)

How India’s ban on some rice exports is ricocheting around the world. India’s decision to ban exports of some rice was based on domestic reasons, but it’s had a global impact. (Al Jazeera)

Russia’s central bank hikes rates to 12 percent to halt rouble’s slide. The Kremlin publicly called on the central bank to tighten its monetary policy after the rouble plummeted past the 100 threshold against the U.S. dollar. (Al Jazeera)

Chocolate makers' prospects sour as cocoa prices spike. Chocolate makers like Hershey (HSY.N) and Mondelez (MDLZ.O) face tougher trading conditions over the next year as they attempt to pass on soaring cocoa costs to cash-strapped consumers who are cutting back. (Reuters)

Norway: Minority Government Struggling

PRS Group

The minority government made up of Prime Minister Jonas Gahr Støre’s Labour Party and Finance Minister Trygve Vedum’s agrarian Sp has struggled to recover from early missteps. Polls conducted in January 2022 showed support for Labour at barely more than 19% and for the Sp at around 6%, down from their respective vote share of 26.3% and 13.5% at the general election held less than four months earlier. As the government approaches the two-year mark of its tenure, the poll numbers remain virtually unchanged from where they stood in early 2022, and support for the main opposition Conservative Party is currently running above 30%.

The government has been criticized for failing to deliver on promises to improve conditions for average Norwegians, who instead have been burdened by higher taxes and cuts to social benefits that have magnified the pain of a steep rise in living costs, even as high prices for oil and gas have contributed to record flows into the state coffers. As things stand, it is difficult to see how the governing partners might turn things around. The government has loosened the purse strings a bit in response to signs of weakening economic growth, but inflation has remained stubbornly high, and with a tight labor market raising concerns about the potential for a wage-price spiral, the government is unlikely to implement spending measures that might boost its popularity.

With no constitutional provision for an early election, and no vote otherwise required until 2025, the Sp has little immediate cause to reconsider its alliance with Labour. In any case, the loss of the Sp’s support would not have a significant impact on Støre’s ability to govern, which is already constrained by his dependence on the support of the leftist SV to pass the budget, while otherwise cobbling together majority coalitions of varying composition on a case-by-case basis.

The arrangement is not conducive to efficient or predictable policy implementation, as was highlighted recently by the prolonged haggling over the rate of a tax on salmon farming that was approved by the government last September and technically came into effect in January but was only definitively set at 25% in May. Key items on the government’s medium-term agenda are far more contentious than the tax debate and will likely face more formidable obstacles. A prime example is the recent approval to proceed with deep-sea mining, which is seen as a vital component of a strategy to reduce Norway’s economic dependence on hydrocarbons production but carries environmental risks that green activists contend far outweigh the benefits from a reduction of the country’s contribution to greenhouse gas emissions.

More immediately, the government will continue to look for ways to bolster production from offshore oil and gas fields to ensure sufficient capacity to satisfy increased demand from EU customers seeking alternatives to Russia for their energy supply. The government postponed one of two licensing rounds planned through 2024 as part of a budget deal with the SV late last year, affecting frontier areas of the continental shelf. However, last month, the government gave final approval to more than a dozen offshore investment projects with an estimated worth of $18.5 billion, citing Norway’s important role in ensuring European energy security.

The growth contribution from the hydrocarbons sector will be less pronounced this year with the softening of oil prices. Lower energy costs will have a positive effect on economic activity, but household spending and non-oil investment will remain subdued against a backdrop of stubbornly high inflation, a broadly conservative fiscal stance, and likely further monetary tightening. On balance, real GDP growth is forecast to slow to 1%-1.5% this year.

The analysis above is taken from the July 2023 Political Risk Letter (PRL). The best-in-class monthly newsletter, written by the PRS Group, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs such as turmoil, financial transfer and export market risk. It also includes country rating changes, providing an excellent method of tracking ratings and risk for the countries where credit professionals do business. FCIB and NACM members receive a 10% discount on PRS Country Reports and the PRL by subscribing through FCIB.

 

Week in Review Editorial Team:

Annacaroline Caruso, editor in chief

Jamilex Gotay, editorial associate

Kendall Payton, editorial associate