Mission Grey Daily Brief - November 01, 2024
Summary of the Global Situation for Businesses and Investors
The 2024 US presidential election is gripping the world's attention and could have a significant impact on the global economy. The Russian President Vladimir Putin is taking advantage of a distracted and divided United States to push for pro-Kremlin electoral outcomes in Georgia and Moldova and bring North Korean soldiers to Russia to fight Ukraine. China's military incursions into Taiwan's ADIZ and crossings of the median line in the Taiwan Strait have skyrocketed, creating a dangerous new normal. China has imposed sanctions on the US drone supplier to Ukraine, Skydio, banning Chinese companies from providing critical components to the firm. Attackers set fire to the headquarters of a Bangladesh party that supported the country's ousted leader Sheikh Hasina on Thursday night. US airstrikes targeted multiple sites in Syria, killing up to 35 Islamic State militants. The UN General Assembly has condemned the US economic embargo of Cuba for a 32nd year.
US Presidential Election
The 2024 US presidential election is gripping the world's attention and could have a significant impact on the global economy. The vote, held on 5 November, could also have major consequences on international issues ranging from the climate crisis to the reorientation of global supply chains. The Republican candidate is former President Donald Trump and the Democratic candidate is current Vice President Kamala Harris. In China, where election news is filtered through heavily censored state and social media, the focus has been more on spectacle than substance – with a sense that no matter who wins, the tensions of the US-China relationship will remain. People in China have seen their economic prospects dim as the country has struggled to fully rebound following its stringent pandemic controls amid a wider slowdown and property market crisis, among other challenges. Interest in the candidates and their policies appears muted compared with past US elections.
Russia-Ukraine War
The Russian President Vladimir Putin is taking advantage of a distracted and divided United States to push for pro-Kremlin electoral outcomes in Georgia and Moldova and bring North Korean soldiers to Russia to fight Ukraine. New NATO Secretary General Mark Rutte confirmed this week that North Korean military units have been deployed to Russia’s Kursk region for potential battle with Ukrainian troops, who have seized territory there. Pentagon officials estimate that as many as ten thousand North Korean soldiers have been sent to Russia for military training, among them the country’s elite special forces. Even as Russia escalates militarily against Ukraine, it has deployed disinformation, influence operations, and money in Moldova and Georgia, working to turn back pro-Western majorities in both countries that favour eventual integration into the European Union (EU) and other Western institutions.
China-Taiwan Tensions
China's military incursions into Taiwan's ADIZ and crossings of the median line in the Taiwan Strait have skyrocketed, creating a dangerous new normal. Crossings of the median line have become increasingly common since August 2022, when then-House Speaker Nancy Pelosi controversially visited Taiwan, and China has been steadily erasing it altogether. In a recent drill surrounding Taiwan, 111 Chinese warplanes crossed it, marking a single-day high. A nation's ADIZ extends far beyond its territorial airspace, but the area is closely monitored for national security purposes. When Chinese aircraft enter Taiwan's de facto ADIZ, it dispatches combat air patrol (CAP) aircraft in response. In 2021, the Chinese military flew 972 aircraft into Taiwan's ADIZ, and that number nearly doubled in 2022. 1,703 aircraft were recorded in 2023. And 2024 looks to have a record-breaking number, with over 2,000 aircraft documented as of September. They're also no longer limited to a corner of the ADIZ.
China Sanctions US Drone Supplier to Ukraine
China has imposed sanctions on the US drone supplier to Ukraine, Skydio, banning Chinese companies from providing critical components to the firm. Skydio is currently looking for alternative suppliers because of the sanctions, which have also blocked the supply of batteries from the company's sole supplier. The company has asked the Biden administration for help. US officials are concerned that China could undermine US supply chains and make it harder to supply drones used for intelligence gathering in Ukraine. Skydio's crisis highlights the risks faced by US companies dependent on China and comes as foreign businesses worry about China's use of security laws to detain local workers and conduct corporate raids. On 11 October, China imposed sanctions on several US companies, including Skydio which is a private company, in response to Washington's approval of the sale of combat drones to Taiwan. Skydio was recently awarded a contract with Taiwan’s National Fire Agency. The sanctions were imposed before Skydio could find alternative suppliers. One of the sources said that the Chinese authorities had visited Skydio's suppliers, including Dongguan Poweramp, a subsidiary of Japan's TDK that makes batteries for drones, and ordered them to stop working with Skydio. On 30 October, Skydio notified its customers that it was limiting the number of batteries it ships with its drones due to Chinese sanctions and warned that new suppliers are not expected to come on stream until spring. Skydio is discussing the situation with companies in Asia, particularly in Taiwan. One source said that US officials had reached out to Asian allies to discuss ways to support the company. Skydio has also been in contact with Taiwan's Vice President Hsiao Bi-khim on the issue. The San Mateo-based company serves corporate and government clients, including the US military. It said it has sent more than 1,000 drones to Ukraine to gather intelligence and help record Russia's war crimes. Skydio said its newest model, the X10, was the first US drone to pass Ukraine's electronic warfare tests, which makes it harder to jam, and Kyiv has ordered thousands of such drones. China's actions come as the US Congress is considering a bill to ban Americans from using drones made by DJI, the Chinese company that dominates the global commercial drone market.
Further Reading:
Americans are going to the polls. Here’s how the US election works - World Economic Forum
China imposes sanctions on US drone supplier to Ukraine - Ukrainska Pravda
China’s watching the US election – but doesn’t see much hope for better ties - CNN
Luxembourg grain company still profiting despite Ukraine war - Luxembourg Times
Putin is making the most of a distracted and divided United States - Atlantic Council
UN General Assembly condemns the US economic embargo of Cuba for a 32nd year - Toronto Star
Themes around the World:
Regional Supply Chain Disruptions
The halt in gas supplies disrupts regional supply chains, particularly in energy-intensive industries. Increased costs and supply uncertainties may lead to inflationary pressures and reduced competitiveness for businesses reliant on stable energy supplies, necessitating strategic adjustments in operational planning across the region.
AI Boom and Corporate Profits
The AI boom is expected to drive record profits for Japanese firms, particularly in the tech sector. This growth could enhance Japan's attractiveness for foreign investment, while also necessitating strategic adjustments in response to evolving market demands.
International Arms Supply Challenges
Israel faces increasing challenges in securing arms supplies from the U.S. due to political tensions and changing global dynamics. The Nagel Committee's report highlights the need for armament independence, as reliance on foreign military supplies becomes more precarious, necessitating a shift towards domestic production capabilities.
Generative AI in Financial Sector
The adoption of generative AI in Japan's financial sector is poised to drive digital transformation and economic growth. With regulatory support and low labor costs, Japan is becoming a prime location for AI development, enhancing operational efficiency and risk management in financial institutions, which could attract further foreign investment.
Japan's Economic Growth Outlook
Japan's economy is expected to grow moderately in 2025, supported by consumer spending and wage increases. However, potential trade tensions and tariff threats from the U.S. could dampen export growth, necessitating careful monitoring of international trade policies and their implications for Japanese businesses.
Decline in Air Travel and Tourism
Germany's aviation sector is struggling with reduced flight capacity and rising fares, impacting tourism and business travel. This decline could exacerbate economic malaise, as reduced international connections hinder Germany's attractiveness as a business destination.
Inflationary Pressures Persist
Germany's inflation rate rose to 2.6% in December, driven by energy costs and supply chain disruptions. Persistent inflation could erode consumer purchasing power and dampen economic growth, complicating investment strategies and impacting overall business operations.
Service Sector Contraction
France's service sector contracted for the first time in four years, driven by weak demand and political uncertainty. This contraction could hinder economic recovery and impact employment, necessitating strategic adjustments for businesses in the service industry.
Climate Change and Economic Policy
The ongoing debate over climate policies under the Trump administration may shift U.S. economic strategies. The focus on deregulation and tariffs could impact international trade dynamics, particularly in low-carbon technology sectors.
Surge in Business Bankruptcies
France experienced over 66,000 business bankruptcies in 2024, marking a 28% increase since 2019. This trend, driven by inflation and political uncertainty, threatens job security and investment plans, particularly for SMEs, highlighting vulnerabilities in the French economy.
Nuclear Energy Challenges
France's ambition to construct six new nuclear reactors faces significant hurdles, including financing uncertainties and project readiness. With 70% of its energy from nuclear sources, delays could impact energy security and investment in the energy sector, affecting overall economic stability.
China's Investment Appeal Remains Strong
Despite global protectionism, China continues to attract foreign investment, exemplified by Sanofi's €1 billion investment in insulin production. In 2024, foreign direct investment rose by 6%, with over 52,000 foreign companies established, highlighting China's robust industrial system and vast consumer market as key factors for sustained investor confidence.
Healthcare Infrastructure Destruction
The destruction of healthcare facilities in Gaza has raised humanitarian concerns and could lead to international backlash against Israel. This situation may affect Israel's global standing and complicate trade relations with countries prioritizing human rights.
Investment in Future Industries
The Thai government is actively promoting investments in five core future industries: data centers, AI, electric vehicles, precision agriculture, and food technology. This initiative aims to enhance economic growth and attract significant foreign investment, positioning Thailand as a regional hub for innovation and technology.
Digital Economy and Cloud Investments
Thailand is positioning itself as a digital innovation hub, with significant investments from tech giants like AWS. This development is expected to enhance the country's technological capabilities and create jobs, driving growth in the digital economy and attracting further investments.
Economic Growth Projections
Thailand's economy is projected to grow at a sluggish rate of 2.05% to 2.7% in 2025, influenced by global uncertainties and domestic challenges. High household debt and potential US tariff increases on Thai exports pose risks, impacting international trade and investment strategies.
Mobile Payments Regulation
Regulatory decisions regarding market share limits for mobile payment giants like PhonePe and Google Pay could reshape India's digital payment landscape. This may affect fintech startups and overall consumer experience, impacting investment in the tech sector.
Nuclear Energy Developments
France's launch of its most powerful nuclear reactor marks a significant step towards energy sustainability. This development is crucial for reducing reliance on fossil fuels and enhancing energy security, potentially attracting investments in green technologies and reshaping the energy landscape in Europe.
Nikkei Index Performance
Japan's Nikkei index is on track for its best year-end close since 1989, driven by strong corporate earnings and shareholder activism. This performance reflects renewed investor confidence and could stimulate further investment in Japanese equities.
Manufacturing Sector Decline
The French manufacturing sector is facing a crisis, with the PMI dropping to a 55-month low. Weak demand and political uncertainty are leading to job losses and reduced orders, particularly in key industries like automotive and construction. This downturn poses risks to supply chains and overall economic stability.
Increased Salary Requirements for Visas
Starting January 2025, the UK will raise salary thresholds for Skilled Worker visas significantly, impacting sectors like technology and healthcare. This change aims to attract highly skilled professionals but may limit the workforce pool, affecting business operations and recruitment strategies in various industries.
Costly Natural Disasters Impacting Business
Recent wildfires in Los Angeles are projected to be among the costliest in U.S. history, with significant implications for the insurance industry and property values. The increasing frequency of such disasters poses risks to business operations and necessitates a reevaluation of risk management strategies.
Manufacturing Sector Decline
France's manufacturing sector is experiencing a downturn, with the PMI dropping to a 55-month low. Weak demand and political uncertainty are leading to job losses and reduced production, which could disrupt supply chains and diminish France's competitiveness in the global market.
Geopolitical Risks and Trade Dynamics
Thailand's economy faces challenges from global uncertainties, including potential US tariff increases and geopolitical tensions. Experts predict slow growth rates, impacting export prospects and investment strategies. Businesses must navigate these risks to maintain competitiveness in international markets.
Challenges in U.S. Automotive Industry
The U.S. automotive sector faces significant challenges due to shifting production dynamics and competition from foreign manufacturers. Trump's policies may further complicate trade relations, impacting supply chains and the industry's ability to adapt to new technologies.
Regulatory Changes in Drone Supply Chains
The U.S. Department of Commerce's proposed regulations on drone supply chains aim to mitigate national security risks from foreign adversaries. This initiative could lead to increased compliance costs for U.S. companies and influence the competitive landscape in the drone industry, particularly concerning partnerships with foreign suppliers.
Challenges in Petroleum Exports
India's petroleum exports have declined due to weak global demand and logistical disruptions. A significant drop in exports from $55.02 billion to $44.61 billion highlights vulnerabilities in the energy sector, necessitating strategic adjustments to maintain competitiveness in global markets.
Geopolitical Tensions in Eastern Europe
The termination of gas flows has heightened geopolitical tensions, particularly with Slovakia and Moldova, which remain reliant on Russian gas. Slovakia's Prime Minister has criticized Ukraine's decision, warning of drastic impacts on EU energy security, while Moldova faces an energy crisis, highlighting the fragility of regional energy dependencies amidst ongoing conflict.
Optimism for Economic Growth
Nearly 80% of Japanese firms anticipate continued economic growth in 2025, driven by rising wages and consumer spending. This positive outlook may bolster investor confidence and influence foreign investment strategies, despite potential risks from U.S. trade policies.
Drones Supply Chain Security
The U.S. Department of Commerce is seeking to regulate the drone supply chain to mitigate risks from foreign adversaries. This initiative reflects growing concerns over national security and could lead to stricter compliance requirements for U.S. companies.
EU's Energy Diversification Efforts
The EU's response to the gas transit halt underscores its ongoing efforts to diversify energy sources. Countries like Austria and Slovakia have secured alternative supplies, indicating a shift towards greater energy independence, which may influence future investment in renewable energy and infrastructure.
Energy Supply Vulnerabilities
Germany's economy is acutely exposed as gas reserves dwindle, with storage levels dropping significantly. High energy prices threaten the competitiveness of its energy-intensive manufacturing sector, raising concerns about inflation and economic stability, which could deter foreign investment and disrupt supply chains.
Moldova's Energy Crisis
Moldova, heavily reliant on Russian gas, faces an energy crisis following the cessation of transit through Ukraine. The government has declared a state of emergency, which may necessitate international assistance and could influence foreign investment in Moldova's energy sector and infrastructure development.
Mass Emigration Crisis
Israel is experiencing an unprecedented wave of emigration, with 600,000 citizens leaving since the onset of the war in October 2023. This demographic shift threatens Israel's workforce, particularly in professional sectors, and undermines its long-term population goals, impacting economic stability and innovation.
Impact of Tariffs on Lumber Market
Proposed tariffs on Canadian lumber could significantly disrupt the U.S. lumber supply chain, leading to increased costs for construction materials. This may result in higher housing prices and affect the broader real estate market, influencing investment strategies in the sector.
UK Shipbuilding Industry Revitalization
The acquisition of Harland & Wolff shipyard by Navantia secures jobs and contracts for the UK shipbuilding sector. This revitalization is significant for national defense and could enhance the UK's manufacturing capabilities, impacting supply chains and investment in the maritime industry.