Russian premier abruptly quits amid swirl of speculation on Putin. The unexpected move by Prime Minister Dmitri A. Medvedev fueled speculation that President Vladimir V. Putin is maneuvering to stay in power when his term ends in 2024. (New York Times)

Ukrainian prime minister submits resignation. Ukraine’s prime minister submitted his resignation Friday, days after he was caught on tape saying President Volodymyr Zelenskiy — a former sitcom star with no previous political experience — knows nothing about the economy. (AP News)

Trump signs China trade deal, putting economic conflict on pause. An initial pact, cooling tensions in an election year, follows months of escalating tariffs and a trade war that seemed as if it would never end. (NY Times)

Europe puts Iran on notice as it grasps for a diplomatic solution. Europe is taking the lead in forcing Iran towards a diplomatic de-escalation, and it is doing so using President Donald Trump's tactics. (CNN)

Phase one trade-deal analysis. Trump’s trade team has made a decent deal with the Chinese, but enforcing it could be a problem. (National Review)

U.S.-China trade deal reality check: What’s new, what’s unclear. The deal signed between the U.S. and China brings a pause in the trade war between the world’s two largest economies. However, it promises some actions China has already taken and skepticism remains as to whether the nation can buy an additional $200 billion in goods and services, including $95 billion in commodities. (Bloomberg)

US, EU square up for trade brawl after Trump’s China agreement. The European Union’s new trade chief will be in Washington for the next three days trying to head off a transatlantic commercial war on several fronts. The prospects for success look slim. (Business Mirror)

Hezbollah warns of ‘chaos’ if Lebanon government delayed. A senior Hezbollah official warned Friday that Lebanon could fall into chaos and “complete collapse” unless a new government is formed. (Washington Post)

Nervous U.S. allies brace for Iran fallout. Gulf and European countries are eyeing Trump with trepidation as they fear more reprisals from Iran. (Foreign Policy)

The UK is abandoning its alliance with Trump as the United States 'withdraws from its leadership around the world'. The UK is threatening to tear up its defense alliance with the US after President Donald Trump's Iran crisis triggered a rupture between the two countries. (Business Insider)

No shortage of US dollars in Forex market, says BOJ. The Bank of Jamaica (BOJ) is adamant that there is no shortage of US dollars in the foreign exchange market despite the recent slip in the value of the Jamaican dollar. (Jamaica Observer)

9 key trade finance tech developments of 2019. The world of trade and trade finance continues to evolve through technology advancements, and that trend showed no signs of slowing in 2019. (Global Trade Review)

Six things to know about Peru's economy in 2020. Peru continues to be one of Latin America’s best-performing economies, but growth has lost momentum in recent years, due to both domestic and external factors. (IMF)

German economic growth to slow further in 2020. Germany’s BDI industry association said on Thursday it expected German economic growth to slow further this year as there are no signs of improvement in the struggling manufacturing sector. (HSN)

Taiwan stands up to Xi. The Chinese leader miscalculated, increasing the pressure he exerted, but driving more support to Tsai Ing-wen. (Atlantic Monthly)

The Chinese government under President Xi Jinping has renewed efforts to exert control over the Republic of China (ROC), but there are limits to what it can do. The most obvious means of intimidation are really not on the table because China cannot pursue a military attack strategy unless there was some drastic change that it would be able to exploit.

The strategy that had been in place in past years was to try to work out some kind of political deal along the lines of the Hong Kong arrangement, but recent events have revealed the limitations of such an approach. The desire for independence is far stronger in Taiwan than in Hong Kong; it has been a nation—for all intents and purposes—for decades. This leaves the Chinese with more subtle weapons such as co-opting local leaders and using economic pressure. Even the latter has been less than effective given the fact China depends on much of that Taiwanese business acumen.

China tried very hard to influence the recent elections in Taiwan. Current President Tsai Ing-wen was an ardent foe of the mainland and made no secret of her desire to push the issue even further. The Chinese poured money into supporting her opposition and seemed to be making headway in the effort—especially among the older population with ties to the mainland and in the rural areas where there is less support generally for the politicians associated with the urban areas.

The support for Tsai Ing-wen was very strong among the young population and the business community, but there was a concern that young people would not show up at the polls. That fear was not borne out by the behavior on election day. The young did show up and voted Tsai Ing-wen back to power in a landslide.

This is a serious black eye for the Chinese and for Xi. It fuels the protests in Hong Kong and makes it clear that Xi has no real options remaining for Taiwan. The military option remains very unlikely, but manipulating the domestic politics of the Republic of China is not working either.

The Chinese economy needs Taiwan more than ever at this stage. It provides a way for some Chinese companies to subvert the restrictions and tariffs that have been imposed by the U.S. The biggest challenge Tsai Ing-wen faces is remaining connected to other Asian economies as Beijing has been working hard to get other nations to isolate the ROC. This has had limited impact as Taiwan remains close to nations such as the U.S., Japan, U.K. and Australia. Even Vietnam has been expanding ties with the ROC given their long-time animosity toward China.

China bases its political influence on its ability to finance and encourage business relationships. Chinese economic slowdown has limited their ability to influence the region with its usual tools. That is part of the reason that China is turning to the military option more often.

President Rodrigo Duterte is a polarizing figure at home and a target of criticism in international circles, but he continues to enjoy the backing of supermajorities in both chambers of the bicameral legislature, and is using that power to reshape the judiciary and settle scores with political rivals. On that latter score, the Congress will decide the fate of the country’s largest broadcast network, ABS-CBN, which faces the threat of nonrenewal of its 25-year license for refusing to air the president’s political broadcasts.

Notably, the president has made little headway on either a promised battle against corruption or proposed constitutional reforms that would replace the current centralized structure of government with a federal model. Duterte’s apparent loss of interest in overhauling the constitution could reflect doubts that changes favored by the president can obtain the popular backing required for approval. In any case, barring a strong push on that front, the assumption is that the one-term limit on the presidency will still be in force when presidential and legislative elections are next held in 2022.

Duterte claims he will not anoint a preferred successor, but he has publicly expressed favorable opinions about two possible contenders, Sorsogon Gov. Francis “Chiz” Escudero and Joey Salceda, an economist who previously served as governor of Albay Province. The president has publicly discouraged his daughter, Sara Duterte, against seeking the top office, but she has refused to rule out a presidential bid, stating that she will not make a final decision on the matter before 2021.

Inflows of FDI fell from a record high of $8.7 billion in 2017 to just $6.5 billion last year, short of the $8 billion target and well off the pace of more competitive markets in the region. Impediments include constitutional restrictions on foreign ownership, as well as security and climate risks, high energy costs, and a perceived lack of judicial protection for foreign firms. Duterte’s threat to pursue criminal charges against two water utilities that have won arbitration cases seeking compensation for losses sustained as a result of their inability to raise the price of water services will do nothing to assuage the concerns of investors.

On a positive note, the president recently signed legislation that will facilitate faster approval of investment projects, and Package 2 of Duterte’s Comprehensive Tax Reform Program will be implemented in 2020. Changes include a phased reduction of the corporate income-tax rate from 30% to 20%, along with various fiscal incentives that should help to boost foreign investment.

Real GDP growth accelerated to 6.2% (year-on-year) in the third quarter, after slowing to less than 5.6% in the first half of the year, in part owing to the delayed implementation of the budget. A base effect will limit the potential for a similarly strong showing in the final quarter of the year, resulting in annual growth of less than 6% for the first time since 2011. Fiscal and monetary stimulus will underpin growth of 6% or more in 2020, but the possible persistence of global trade tensions and the ever-present risk of economic damage from natural disasters pose downside risks to the forecast.

The analysis above is taken from the December 2019 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.

A year of increased domestic and international divisions and economic slowdown is on the horizon, according the World Economic Forum’s Global Risks Report 2020. The report identifies geopolitical as the force behind an “unsettled” unilateral world of great power rivalries. It finds that business and government leaders must work together to tackle shared risks.

Over 750 global experts and decision-makers were asked to rank their biggest concerns in terms of likelihood and impact, and 78% said they expect “economic confrontations” and “domestic political polarization” to rise in 2020.

The report, produced in partnership with Marsh & McLennan and Zurich Insurance Group, points to a need for policymakers to match targets for protecting the Earth with ones for boosting economies, and for companies to avoid the risks of potentially disastrous future losses by adjusting to science-based targets.

For the first time in the survey’s 10-year outlook, the top five global risks in terms of likelihood are all environmental:

• Extreme weather events with major damage to property, infrastructure and loss of human life.
• Failure of climate-change mitigation and adaptation by governments and businesses.
• Human-made environmental damage and disasters, including environmental crime, such as oil spills, and radioactive contamination.
• Major biodiversity loss and ecosystem collapse (terrestrial or marine) with irreversible consequences for the environment, resulting in severely depleted resources for humankind as well as industries.
• Major natural disasters such as earthquakes, tsunamis, volcanic eruptions, and geomagnetic storms.

It adds that unless stakeholders adapt to “today’s epochal power-shift” and geopolitical turbulence—while still preparing for the future—time will run out to address some of the most pressing economic, environmental and technological challenges. This signals where action by business and policymakers is most needed.

The Global Risks Report is part of the Global Risks Initiative, which brings stakeholders together to develop sustainable, integrated solutions to the world’s most pressing challenges. This year’s report focuses explicitly on impacts from rising inequality, gaps in technology governance, and health systems under pressure.

John Drzik, Chairman of Marsh & McLennan Insights, said:

“There is mounting pressure on companies from investors, regulators, customers, and employees to demonstrate their resilience to rising climate volatility. Scientific advances mean that climate risks can now be modeled with greater accuracy and incorporated into risk management and business plans. High profile events, like recent wildfires in Australia and California, are adding pressure on companies to take action on climate risk at a time when they also face greater geopolitical and cyber risk challenges.”

 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations