Return to Homepage
Image

Mission Grey Daily Brief - August 23, 2024

Summary of the Global Situation for Businesses and Investors

The global situation remains complex, with ongoing geopolitical tensions, economic shifts, and social unrest shaping the landscape. Russian President Vladimir Putin's visit to Azerbaijan strengthens Moscow's position in the region, while Germany faces challenges in maintaining support for Ukraine. A Canadian rail shutdown impacts the US economy, and France's Macron focuses on AI and economic ties with Serbia. Bangladesh faces political upheaval, and Ethiopia and Somalia clash over military presence demands.

Azerbaijan-Russia Relations

Russian President Vladimir Putin's visit to Azerbaijan on August 18-19 marks a significant development in Moscow's long-term strategy for the region. Despite historical tensions, Azerbaijan's participation in the 1991 referendum for the preservation of the USSR and the improvement in relations under Heydar Aliyev set the stage for the current rapprochement. This shift in Azerbaijan's stance grants Russia a strategic advantage in the region, enhancing its security posture and influence in the post-Soviet space.

Germany-Ukraine Support

Germany's commitment to supporting Ukraine is being tested by increasing political pressure and budgetary constraints. Amid evidence of Ukraine's involvement in the pipeline explosions, Chancellor Olaf Scholz reaffirms unwavering support, but his coalition government faces critical state elections in September, with far-left and far-right parties likely to gain traction and call for an end to military aid. Germany's constitutional debt limit further complicates financial decision-making, creating an uncertain environment for businesses and investors.

Canada-US Trade Disruptions

The shutdown of Canada's two major freight railroads due to contract disputes has disrupted cross-border shipping, impacting a range of industries in the US that rely on Canadian rail lines for raw materials and goods transportation. While the initial impact is minimal, a prolonged shutdown could slow US economic growth, trigger inflation, and lead to job losses. This situation underscores the interconnectedness of global supply chains and the potential for cascading effects on businesses and consumers.

France-Serbia Relations

French President Emmanuel Macron's upcoming visit to Serbia aims to strengthen economic ties and collaborate on AI development, with Serbia set to chair the Global Partnership on Artificial Intelligence in 2025. This trip follows Serbia's recent deal with the EU for access to raw materials, showcasing Serbia's strategic positioning and its potential as a regional leader in AI research.

Risks and Opportunities

  • Risk: The Canadian rail shutdown could disrupt supply chains and trigger inflation in the US, affecting businesses and consumers.
  • Risk: Germany's wavering support for Ukraine due to political and economic pressures may create uncertainty for investors and businesses with interests in the region.
  • Opportunity: France's focus on AI and economic ties with Serbia opens avenues for investment and collaboration in the AI sector, with Serbia poised to play a leading role in responsible AI development.
  • Opportunity: Azerbaijan's improved relations with Russia could present opportunities for businesses in the region, particularly in the energy and trade sectors.

Recommendations for Businesses and Investors

  • Monitor the situation in Canada closely, as prolonged rail shutdowns could impact supply chains and increase costs for businesses and consumers.
  • Exercise caution when investing in Germany and Ukraine due to the uncertain political and economic landscape, which may impact financial decisions and aid commitments.
  • Explore opportunities in Serbia, particularly in the AI sector, as the country strengthens its position as a regional leader in AI research and development.
  • Remain vigilant about the shifting geopolitical dynamics in the Caucasus region following Russia's improved relations with Azerbaijan, as this may impact business operations and investments.

Further Reading:

Armenia defense minister visits frontline, follows ongoing large-scale construction work (PHOTOS) - NEWS.am

Bangladesh court sends 2 journalists to police custody for questioning as chaos continues - The Associated Press

Canada's 2 major freight railroads forced to enter contract arbitration with labor union, government minister confirms - ABC News

Do not be hostile to Russia: Azerbaijan has surpassed Georgia, Ukraine and Moldova - Eurasia Daily

Egypt’s oil & gas production to return to normal next year, says PM - Offshore Technology

Ethiopia: Somalia Accuses Ethiopia of Derailing Ankara Talks Over Sea Deal Demand - AllAfrica - Top Africa News

France’s Macron to discuss AI and economy on trip to Serbia - WTAQ

German Support for Ukraine Comes Under New Strains - The New York Times

How a Canadian rail shutdown could worsen US inflation - ABC News

In Nigeria, at least 56 journalists attacked and harassed as protests roil region - Committee to Protect Journalists

Themes around the World:

Flag

Austerity measures and tax hikes

The French government has proposed a belt-tightening budget for 2025 with significant tax hikes and spending cuts to address the country's high public debt. This includes increased taxes on businesses, the wealthy, energy, and plane tickets, as well as cuts to social security programs and state pensions. While these measures aim to restore fiscal order, they have sparked criticism from left-wing lawmakers and unions as potentially harmful to low-income families and small businesses.

Flag

Impact of Geopolitical Conflicts

The ongoing conflicts in the Middle East, particularly between Israel and Iran, have led to rising crude oil prices, affecting various sectors in India. Additionally, the Ukraine-Russia war has severely disrupted global supply chains, impacting the trade of key commodities such as food and energy resources.

Flag

US Economic Performance

The US economy is showing signs of strength, with rising equity benchmarks, strong retail sales, and lower jobless claims. The US dollar has also gained value, and improved polling for a potential Trump victory has boosted volatility in trading and the dollar's value.

Flag

EU Spending Rules and Debt Challenges

Germany faces challenges in meeting the stringent EU spending rules it advocated for, as its economy struggles. The country is considering spreading out planned spending cuts over a longer period. Germany's debt and borrowing limits impact its ability to invest in infrastructure, military, and other areas.

Flag

Energy Security

The UK is transitioning to low-carbon electricity sources and increasing energy imports, reducing the risk of winter blackouts. However, heavy reliance on gas and insufficient progress in insulating homes and scaling heat pumps leave the country vulnerable to energy price shocks and surging energy bills.

Flag

Military Spending Impact

Russia's extensive military spending is pushing its economy into overdrive, with heavy spending on occupying forces, high wages, and inflation. This has contributed to economic growth but is unsustainable in the long term, and Russia's economy is overheating.

Flag

Political Turmoil and Budgetary Challenges

France's political landscape is marked by a hung parliament and fierce budget debates. The new government's plans to tackle the deficit with tax hikes and spending cuts have sparked an outcry from left-wing lawmakers and unions, who argue that these measures will unfairly impact low-income families, apprentices, retirees, and small businesses. The government's survival hangs in the balance.

Flag

Russia Sanctions

The UK has imposed sweeping sanctions on Russia's shadow fleet of oil tankers, targeting 43 vessels to date. This action aims to curtail Russia's ability to bypass sanctions and sustain its war efforts through illicit oil exports, while also addressing environmental and trade security risks posed by the fleet.

Flag

Political Stability and Foreign Investments

Political instability in Africa, a key region for China's Belt and Road Initiative, may force China to choose between direct intervention to protect its investments and adhering to its noninterference policy. This could impact China's development plans and its reputation globally.

Flag

Border Controls and Trade Impact

Germany's newly reintroduced land border controls have raised concerns among businesses about potential delays and higher costs. This could affect the movement of goods and workers, increasing costs for companies and consumers, reducing trade volume, and impacting the overall German economy.

Flag

Border Control Concerns

Germany's newly reintroduced land border controls have raised concerns among businesses about potential impacts on the economy. Border checks are causing delays and higher costs, affecting the movement of goods and workers. This could decrease trade, increase costs for companies and consumers, and trigger a chain reaction leading to possible economic losses in GDP.

Flag

Geopolitical Risk and Supply Chains

China's assertive foreign policy and tensions with the US and its allies pose risks to supply chains. China has used sanctions and supply chain disruptions as a geopolitical tool, as seen in the case of US drone manufacturer Skydio. Businesses are reassessing their supply chains to reduce exposure to China, with some diversifying away from China to Southeast Asian countries.

Flag

US-Israel Relations

The US has threatened to cut military aid to Israel if it does not improve the humanitarian situation in Gaza within 30 days. This warning is a significant step up in pressure and puts US military aid in jeopardy. The US is Israel's largest supplier of arms, and any reduction in support could impact Israel's military capabilities and ongoing conflicts.

Flag

Energy Security

Ukraine is facing challenges in keeping the lights on as Russian energy attacks intensify. The country is rebuilding power plants and looking to transition to renewable energy sources, which are harder to destroy and can be repaired more quickly. Ukraine aims for 27% of its final energy consumption to come from renewables by 2030.

Flag

Energy Security

Ukraine is facing energy security issues due to Russian attacks on its power plants and infrastructure. The loss of nuclear power and electricity generation capacity could lead to blackouts and a humanitarian crisis during the upcoming winter. The EU and the US are providing financial support, backup equipment, and humanitarian aid to bolster Ukraine's energy sector.

Flag

Economic Sanctions and Trade Relations

France has threatened economic sanctions on Opella's new American owners if they fail to uphold commitments to keep production, jobs, and management in France. This includes penalties of €40 million if production stops in key factories and €100,000 for each economic-related layoff. These sanctions reflect France's determination to protect its economic interests and reshore manufacturing jobs.

Flag

Foreign Investment and M&A Activity

Despite the ongoing war, Ukraine is witnessing growing foreign investment and mergers and acquisitions (M&As). In the first nine months of 2024, there were 36 M&As worth $643 million, compared to 28 deals worth $494 million in 2022. Foreign investors are seeking opportunities in sectors like agri-tech and telecoms, with companies from North America, Europe, and the Middle East leading the way.

Flag

US Presidential Election

The upcoming US presidential election between Donald Trump and Kamala Harris is causing economic uncertainty, with businesses postponing investments until after the vote. Trump's proposed tariffs are expected to increase prices and impact global trade, while Harris's plans are seen as less extreme. The election outcome will shape US economic policy and global market trends.

Flag

Russia-Ukraine Conflict

The UK has imposed sweeping sanctions on Russia's shadow fleet of oil tankers, targeting their ability to sustain war efforts through illicit exports. This is part of coordinated efforts with the US, Canada, and Europe to neutralize the threat to international trade and the environment posed by these vessels.

Flag

Thailand's Investment Opportunities

Thailand has seen a record investment influx of $21.6 billion in the first nine months of 2024, a 42% increase from the previous year. The Thailand Board of Investment (BOI) attributes this to the country's strategic location, robust digital infrastructure, clean energy resources, and strong government support. Foreign Direct Investment (FDI) has expanded, with the top 5 countries being Singapore, China, Hong Kong, Taiwan, and Japan.

Flag

Global Supply Chain Shifts

India has the potential to become a competitive alternative manufacturing hub as global supply chains are rapidly reshaped. To capitalize on this opportunity, India should reduce tariffs and ease foreign direct investment (FDI) restrictions, according to World Bank economist Franziska Ohnsorge.

Flag

Hydrogen Energy Transition

Thailand signed an MoU with Mitsubishi Heavy Industries to explore hydrogen co-firing technology for gas turbine power production. This supports Thailand's goal of carbon neutrality by 2050 and net-zero emissions by 2065. However, there are concerns about the risks and economic viability of underground hydrogen storage.

Flag

Global Manufacturing Decline

The global manufacturing industry is weakening, with major regions like the US, Eurozone, and China experiencing declining activity. This is causing supply chain problems and affecting employment and investment.

Flag

Israel's Military and Defence Industry

Israel's military actions against Iran and Hezbollah have showcased its advanced military capabilities and technology, including precision air and drone strikes. The conflict has highlighted the role of defence companies, with Israel's largest weapons firm facing divestment from Barclays due to pro-Palestinian pressure. Israel's military industry is expected to benefit from US support, such as the deployment of the THAAD missile system.

Flag

Military Spending and Economic Concerns

Israel's war against Hamas and Hezbollah has led to soaring military spending, with monthly expenses rising from $1.8 billion to $4.7 billion. This has caused economic concerns, with economists warning of declining investment, higher taxes, and a strained labor supply. The conflict has also impacted the West Bank economy and Gaza, with high unemployment and displacement.

Flag

Scams and Fraud

Scams are a significant issue in Thailand, with over 89% of respondents in a survey reporting exposure to scams monthly. Online scams have resulted in substantial financial losses, impacting individuals and the country's economy. Efforts to combat scams include collaborations between private and public sectors, as well as the development of anti-scam technologies and early warning systems.

Flag

Shifting Global Order

Germany's economic model, which relied on trade with growing economies, is facing challenges due to a shifting global order. Exports to China have fallen, and German companies face competition from Chinese rivals. Additionally, German carmakers are facing pressure from Trump's trade policies, which threaten tariffs on vehicles not made in the US.

Flag

Insurance Brokerage Expansion

WTW has launched an insurance brokerage service in Japan, offering solutions to commercial clients and wholesale facultative reinsurance placement services. This expansion highlights the growing importance of independent international brokers in Japan's evolving corporate insurance market, presenting opportunities for risk management and insurance partnerships.

Flag

US Election Impact

The upcoming US presidential election is causing uncertainty for businesses, with companies postponing or scaling down investment plans. The election outcome will also impact the direction of US tariffs and trade policies, with a potential Trump victory seen as inflationary and affecting global trade.

Flag

Economic Growth Forecast Slashed

The International Monetary Fund (IMF) slashed Japan's 2024 economic growth forecast to 0.3%, the lowest since the pandemic, citing negative developments such as auto supply disruptions and the fading of one-off factors like tourism.

Flag

Oil Market Impact

Israel's strikes on Iran spared oil infrastructure, causing a drop in oil prices as the market anticipated no supply disruptions. However, the conflict's escalation could still impact oil supply in the future.

Flag

Strong Economic Growth

India's economy is projected to grow at 7% in the current fiscal year and 6.5% in the next. This growth is driven by domestic manufacturing, infrastructure development, and financialization. The country's economic reforms and growing middle class have propelled companies like HDFC Bank onto the global stage.

Flag

Xi Jinping's Policies

Xi Jinping's leftward turn and strict control of the economy have led to an exodus of businesses from China. His policies, including the disastrous zero-COVID-19 approach, have undermined growth and consumer confidence, contributing to the country's economic woes.

Flag

Geopolitical Risks

The situation in the Middle East and the conflict between the US and China are creating economic uncertainty, affecting energy prices and stock markets globally.

Flag

Global Manufacturing Decline

The global manufacturing industry is showing signs of decline, with major regions like the US, Eurozone, China, and South Korea experiencing decreasing activity. This decline is reflected in falling output, new orders, and employment rates, causing concerns for businesses and investors.

Flag

Wage Hike Push and Business Concerns

Prime Minister Shigeru Ishiba's pledge to significantly raise Japan's national average wage may hurt small businesses, as they struggle to secure funds to raise salaries and retain workers, amidst rising costs due to inflation and a weak yen.