2 thoughts on “Economist Intelligence Unit (EIU)”

1. shinichi Post author18/03/2016 at 5:07 pm

   Global risk (April 2016)

   Economist Intelligence Unit (EIU)

   https://gfs.eiu.com/Archive.aspx?archiveType=globalrisk

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2. shinichi Post author18/03/2016 at 5:10 pm

   China experiences a hard landing

   We assess the prospect of a sharp economic slowdown in China as our top risk scenario.

   Analysis
   Continued deterioration in the country’s services and manufacturing sectors, the ongoing build-up of the country’s debt stock (which is now equivalent to some 240% of GDP), and continued capital outflows have highlighted structural weaknesses in the economy and resulted in a (market-driven) depreciation in the renminbi’s exchange rate against the US dollar. The government’s means to revive economic confidence are limited. Its huge fiscal stimulus in 2009 led to a build-up of bad debt that it is still seeking to curtail (especially in local government), and, despite the People’s Bank of China burning through US$108bn of reserves in December alone, the renminbi has continued to weaken. Meanwhile, poorly managed official attempts to shore up the stockmarket have highlighted concerns that the government’s promise to put a floor under economic growth might not be credible – as well as showing the shallow nature of the government’s commitment to allowing market forces to play a role in raising productivity.

   Conclusion
   If China’s economy slows by more than we currently expect, it will further feed the ongoing global commodity price slump (especially in oil and, in particular, metals), with a hugely detrimental impact on those Latin American, Middle Eastern and Sub-Saharan African states that had benefited from the earlier Chinese-driven boom in commodity prices. In addition, given the growing dependence of Western manufacturers and retailers on demand in China and other emerging markets, a prolonged deceleration in growth there would have a severe knock-on effect across the EU and the US – far more than would have been the case in earlier decades.

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   Donald Trump wins the US presidential election

   The businessman and political novice, Donald Trump, has built a strong lead in the Republican party primary, and looks the firm favourite to be the party’s candidate in the US presidential election in November.

   Analysis
   Thus far Mr Trump has given very few details of his policies – and these tend to be prone to constant revision – but a few themes have become apparent. First, he has been exceptionally hostile towards free trade, including notably NAFTA, and has repeatedly labelled China as a “currency manipulator”. He has also taken an exceptionally right-wing stance on the Middle East and jihadi terrorism, including, among other things, advocating the killing of families of terrorists and launching a land incursion into Syria to wipe out IS (and acquire its oil). In the event of a Trump victory, his hostile attitude to free trade, and alienation of Mexico and China in particular, could escalate rapidly into a trade war – and at the least scupper the Trans-Pacific Partnership between the US and 11 other American and Asian states signed in February 2016. His militaristic tendencies towards the Middle East (and ban on all Muslim travel to the US) would be a potent recruitment tool for jihadi groups, increasing their threat both within the region and beyond.

   Conclusion
   Although we do not expect Mr Trump to defeat his most likely Democratic contender, Hillary Clinton, there are risks to this forecast, especially in the event of a terrorist attack on US soil or a sudden economic downturn. It is worth noting that the innate hostility within the Republican hierarchy towards Mr Trump, combined with the inevitable virulent Democratic opposition, will see many of his more radical policies blocked in Congress – albeit such internal bickering will also undermine the coherence of domestic and foreign policymaking.

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