How Houthi attacks in the Red Sea impact shipping in the Suez Canal. Attacks launched by Yemen's Houthi group on commercial ships at the southern end of the Red Sea have prompted several shipping companies to divert vessels, avoiding a route that would take them through Egypt's Suez Canal in the north and its link to the Mediterranean Sea. (Reuters)

Six charts that defined the markets in 2023. America's economic growth vastly outpaced expectations this year. The surprising pep in the economy helped keep corporate profits up and unemployment way down. (Axios)

Housing starts jump: Low housing inventory entices builders. New-home construction surged in November as the nation continues to grapple with a housing shortage. (Axios)

Voting for president in Congo begins as fears persist over safety, credible election. Some 44 million people—almost half the population—were expected to vote, but many, including several million displaced by conflict in the vast country's east, could struggle to cast their ballots. The fighting has prevented 1.5 million people from registering to vote. (NPR)

Pentagon announces new international maritime protection force for the Red Sea. The U.S. and a host of other nations are creating a new force to protect ships transiting the Red Sea that have come under attack by drones and ballistic missiles fired from Houthi-controlled areas of Yemen, Defense Secretary Lloyd Austin announced Tuesday in Bahrain. (NPR)

US highlights AI as risk to financial system for first time. The Financial Stability Oversight Council says emerging technology poses ‘safety-and-soundness risks’ as well as benefits. (Al Jazeera)

Will oil prices rise after Red Sea shipping curbs amid Houthi attacks? Energy markets are beginning to take notice of non-stop assaults on Israeli-linked shipping. (Al Jazeera)

Smell that: The rise of India’s ittar industry. Natural perfumes are seeing a resurgence thanks to a handful of start-ups offering old and new fragrances. (Al Jazeera)

Europe and US extend trade truce over Trump tariffs. The European Union and the U.S. have agreed to pause their trade war until after the presidential election. (BBC)

Cash rules in India despite digital payment boom. In November 2016 India abruptly scrapped two banknotes constituting 86% of all currency in circulation, in a move aimed at combating corruption and curbing undeclared wealth. (BBC)

What do Red Sea assaults mean for global trade? Global supply chains could face severe disruption as a result of the world's biggest shipping companies diverting journeys away from the Red Sea. (BBC)

Cocoa grown illegally in a Nigerian rainforest heads to companies that supply major chocolate makers. Men in dusty workwear trudge through a thicket, making their way up a hill where sprawling plantations lay tucked in a Nigerian rainforest whose trees have been hacked away to make room for cocoa bound for places like Europe and the U.S. (AP)

US Indo-Pacific commander is ‘very concerned’ about escalation of China-Russia military ties. The head of the U.S. Indo-Pacific Command said Monday he is “very concerned” about increased joint military actions by China and Russia in the region. (AP)

Germany’s economy seen shrinking again in the current quarter as business confidence declines. Germany’s economy is likely to shrink again slightly in the current fourth quarter, the country’s central bank said Monday, while a survey showed business confidence retreating unexpectedly. (AP)

A look at recent deadly earthquakes in China. An earthquake that killed more than 120 people in China this week was the country’s deadliest in nearly a decade. (AP)

Bank of England holds interest rates at a 15-year high despite worries about the economy. The Bank of England kept borrowing rates unchanged Thursday despite mounting worries over the state of the British economy, and it showed little sign that it is contemplating cutting them anytime soon—unlike the U.S. Federal Reserve. (AP)

Russia: Putin Shows No Sign of Wavering

PRS Group

It is now 21 months since Russia launched its military invasion of Ukraine, and all evidence suggests that the conflict has reached a stalemate. With the attention of the NATO allies increasingly diverted by efforts to ensure that the Israel-Hamas war does not ignite a broader Middle East conflict, Ukrainian President Volodymyr Zelenskyy can expect to face pressure from the U.S. and other key supporters of his country’s war effort to pursue a negotiated settlement that results in Russia retaining at least some (if not most) of the occupied areas under its control.

On the other side of the conflict, Russian President Vladimir Putin and his inner circle seem to have accepted that they will not install a puppet regime in Kyiv, and instead intend to pursue a strategy of protracted warfare. The Russian military is up to the task of retaining the Ukrainian territory under its control, perhaps indefinitely, and the Russian economy is bearing the burden of unprecedented international sanctions much better than seemed possible. But the available evidence suggests that there is a limited appetite for an expansion of the fight among the broader Russian population, and the sanctions have succeeded in constraining the Moscow regime’s ability to replace the heavy and advanced weaponry lost or damaged in the early stages of the conflict, both of which create disincentives for Russia to attempt a fresh offensive.

The risks for Putin were highlighted in June, when Yevgeny Prigozhin, the leader of the paramilitary Wagner Group, a government-allied mercenary outfit, called on his forces to rise up in rebellion against the Ministry of Defense, resulting in the occupation of Rostov-on-Don and the seizure of the military headquarters in the city. The mutiny erupted amid rising tensions between Prigozhin and top military commanders, whom he accused of instigating a war with Ukraine on false pretenses and then mismanaging the conflict.

The rebellion was contained and defused fairly quickly, and Prigozhin was killed soon after (conveniently, if not suspiciously) in a plane crash. The quelling of the uprising is a testament to Putin’s staying power, but the fact that it occurred at all underscores the ease with which political alliances based on the perception of shared interests can crumble in the crucible of war.

Proponents of a negotiated truce have stressed the need to ensure that Putin has some avenue to make a face-saving retreat. The current assumption is that Putin might agree to a truce that confirms Russia’s sovereignty in the occupied areas that it illegally annexed last year, namely, Kherson, Zaporizhzhia and the separatist eastern oblasts of Luhansk and Donetsk. Such an arrangement would leave Ukraine in control of roughly 85% of its pre-war territory and could be spun by Putin as sufficient to neutralize the “threat” posed by a western-aligned Ukraine.

It is debatable whether those terms would be acceptable to the hawks in Moscow, whose dissatisfaction would create an ongoing risk that Putin might feel compelled to appease his nationalist backers with periodic bouts of saber rattling that threaten to reignite the war. In short, any peace achieved in the near term is likely to be a fragile one that does not provide a strong basis for the restoration of regional stability, which will be essential if western investors are to view Russia in a favorable light.

The economy has shown impressive resilience in response to heavy international pressure. Although the economy registered a real contraction in 2022, the year-on-year decrease amounted to just 2.1%, compared to early forecasts of a double-digit decline. The economy returned to growth in the second quarter of 2023 and is forecast to record a full-year gain of 2%-3%.

Nevertheless, weaknesses are evident. The ruble depreciated by 35% over the first nine months of the year, reinforcing the inflationary impact of the government’s fiscal largesse and war-related shortages. The central bank has implemented four rate hikes since July, with a 200 basis points increase in October pushing the key interest rate up to 15%. However, inflation has remained on an upward trajectory, reaching 6.7% (year-on-year) in October, and the government is requiring exporters to convert their receipts into rubles in an effort to stabilize the currency.

The analysis above is taken from the November 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