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Mission Grey Daily Brief - July 12, 2024

Summary of the Global Situation for Businesses and Investors

As the Russia-Ukraine conflict continues to rage on, the world is witnessing a significant shift in geopolitical dynamics. NATO allies have accused China of being a "decisive enabler" of Russia's war efforts, marking a notable departure from the alliance's previous stance on China. Meanwhile, China has sent a record number of warplanes near Taiwan, raising tensions in the region. In Europe, Finland is set to vote on a bill that would grant border guards the power to turn away asylum seekers, a move criticized for potentially violating international human rights commitments. Lastly, Australia has instructed its government entities to identify any technology that could be manipulated by foreign states, particularly in light of warnings about Chinese hacking groups targeting Australian networks. These developments underscore the complex and evolving nature of the global geopolitical landscape, presenting both risks and opportunities for businesses and investors.

China's Support for Russia and Tensions with Taiwan

For the first time, NATO allies have accused China of being a "decisive enabler" of Russia's war in Ukraine, demanding that it halts shipments of "weapon components" and other technology. This marks a significant shift in NATO's stance, as it had previously only made vague references to China. China's support for Russia is expected to negatively impact its interests and reputation, according to the alliance. Meanwhile, China sent a record number of warplanes across a US-drawn boundary near Taiwan, with Beijing accusing the Taiwanese president of pursuing independence. This has added to the pressure campaign that China has been waging since the Taiwanese presidential election in January. The US has reiterated its commitment to coming to Taiwan's aid in the event of a Chinese invasion and has increased military aid to the region. These developments highlight the escalating tensions between China and the West, with potential implications for global stability and economic relations.

Finland's Response to Migrant Crisis

Finland's parliament is preparing to vote on a controversial bill that would grant border guards the authority to turn away asylum seekers crossing from Russia. This move comes after more than 1,300 people arrived in the country, prompting Finland to close its borders. While supporters argue that this measure is necessary to protect Finland from waves of migrants, critics contend that it violates the country's international human rights commitments. The bill is expected to pass with the support of the main opposition party, but some dissent within their ranks could make the majority tight. This development underscores the complex dynamics surrounding migration in Europe, with potential implications for human rights and international relations.

Australia's Cybersecurity Measures

Australia has instructed its government entities to identify any technology that could be controlled or manipulated by foreign states, particularly in light of warnings from the Australian Signals Directorate (ASD) about Chinese hacking groups targeting Australian networks. This directive is part of Australia's efforts to address a growing number of hostile state and financially motivated cyber threats. The new cybersecurity measures are legally binding and require government entities to report any risks to the Department of Home Affairs' cyber and protective security branch by June 2025. Additionally, entities must conduct a full stocktake of internet-facing systems and develop a security risk management plan. Australia's focus on cybersecurity underscores the increasing importance of protecting critical infrastructure and sensitive information from foreign interference.

Ukraine's Demographic Crisis

Amid the ongoing conflict with Russia, Ukraine is facing a demographic crisis marked by declining birth rates, aging populations, and mass displacement. The war has exacerbated existing population challenges, with the country's population shrinking by more than 10 million in the last 2.5 years. Ukraine's path to demographic sustainability will require comprehensive and inclusive solutions that address the root causes of the crisis. This includes creating an environment that promotes self-realization and harmoniously balances career and parenthood for all citizens. While some have suggested increasing child benefits to boost birth rates, global experiences indicate that effective solutions must consider the individual needs and capabilities of all population groups. Ukraine's demographic situation presents both challenges and opportunities for businesses and investors, particularly in addressing caregiving and skill-building needs.

Risks and Opportunities

  • Risk: The escalating tensions between China and the West could lead to economic disruptions and supply chain issues, affecting businesses with operations or dependencies in the region.
  • Opportunity: Australia's focus on cybersecurity offers opportunities for businesses in the sector to collaborate with the government and enhance the country's cyber defenses.
  • Risk: Finland's decision to turn away asylum seekers could face legal challenges and criticism from human rights organizations, potentially impacting the country's reputation and relationships with international partners.
  • Opportunity: Finland's move to protect its borders could prompt other European countries to follow suit, creating potential business opportunities in border security and migration management solutions.
  • Risk: China's support for Russia's war efforts may lead to economic sanctions or other retaliatory measures from Western countries, impacting businesses with operations or investments in China.
  • Opportunity: As Ukraine faces a demographic crisis, there is a need for innovative solutions in skill-building, healthcare, and inclusive economic policies. Businesses in these sectors could find investment and collaboration opportunities to support Ukraine's long-term development.
  • Risk: The war in Ukraine continues to cause widespread devastation, impacting businesses operating in the region and disrupting supply chains.
  • Opportunity: Increased military aid to Ukraine from countries like Australia, Canada, and <co: 12,32,

Further Reading:

Amid Russian aggression, Ukraine is also facing a demographic crisis - Al Jazeera English

At NATO summit, allies move to counter Russia, bolster Ukraine - Hindustan Times

Australia instructs government entities to check for tech exposed to foreign control - The Record from Recorded Future News

Australia responds to Zelensky’s SOS with $250m in military aid - Sydney Morning Herald

Canada pledges nearly $370 million in military aid for Ukraine. - Kyiv Independent

China Sends Most Warplanes Ever Across Key Line With Taiwan - Yahoo! Voices

Denmark Funds Purchase of 18 Ukrainian Bohdana Howitzers for Kyiv - Kyiv Post

Finland to Vote on Turning Back Migrants Crossing From Russia - U.S. News & World Report

For First Time, NATO Accuses China of Supplying Russia’s Attacks on Ukraine - The New York Times

Themes around the World:

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India-Canada Relations

The recent breakdown in diplomatic relations between India and Canada over accusations of Indian government agents' involvement in a murder in Canada has raised concerns about the impact on bilateral trade and immigration ties. While no economic retaliation has been imposed yet, the uncertainty has led to cautious business expansion and potential delays in immigration processing.

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US Election Uncertainty

The upcoming US presidential election creates uncertainty for businesses, with potential policy changes affecting investment plans. Tariff threats and promises impact business strategies, while the outcome will shape economic policies and global trade.

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Economic Contraction

Germany's economy is expected to shrink by 0.2% in 2024, marking the second consecutive year of contraction. This is due to a combination of conservative public investment, over-reliance on manufacturing and exports, external shocks like the Russia-Ukraine conflict, and structural challenges such as aging infrastructure and population, and excess red tape.

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Foreign Investment Surge

Thailand has seen a 42% year-on-year surge in foreign investment applications in the first three quarters of 2024, reaching $21.6 billion. This is attributed to investor confidence in the Thai government's policies and support for industry and improved business regulations. The top sectors attracting investment include electrical appliances, digital, and automotive, with high-value projects in data centers, advanced electronics, and renewable energy.

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Property Market Crisis

China's property market is facing significant challenges, with a burst property bubble and falling real estate prices. The government has responded with stimulus measures, such as quicker credit for developers and support for renovations, but analysts argue that more needs to be done to address the market's structural issues and prevent a potential global recession.

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UK's Tax Policies and Budget

The UK's Labour government has introduced a tax-raising budget, including increases to the National Insurance payroll tax and capital gains tax, to fill a fiscal gap. While this may boost economic growth, there are concerns that it will hurt hiring, push up inflation, and impact small and medium-sized businesses. The budget also includes measures to support the transition to EVs and critical mineral supply chains.

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Agriculture and Food Security

Georgia's agriculture industry, which is its top sector, is facing challenges due to imports from Central and South America, threatening national food security. The recent hurricane has also caused crop losses, increasing the country's reliance on imports.

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Western Military Aid Uncertainty

The future of Western military aid to Ukraine is uncertain due to the upcoming US presidential election. Both candidates have been vague on their Ukraine policies, with Republican candidate Donald Trump expressing skepticism about further support.

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Western Weapons Limitations

Ukraine's Western weapons, such as F-16s and Abrams tanks, are limited in number and may not survive the war if used extensively. Ukraine needs to maximize their potential, but doing so entails significant risks, and Western partners must accept that these weapons may not return.

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US-China Technology Competition

The US and China are engaged in a technology competition, particularly in the semiconductor and battery industries. China has made significant investments in battery technology and supply chains, while the US focuses on next-generation solid-state batteries. US export controls on semiconductors may push China to 'design out' US technology, impacting US company revenues and supply chains.

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Intellectual Property Theft

China has been accused of intellectual property theft, estimated at $600 billion annually from the US alone. This has contributed to China's economic dominance and exploitation of global markets, often disregarding human rights and property protections.

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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.

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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.

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Somaliland Military Base Ambitions

Israel is interested in establishing a military base in northern Somalia (Somaliland) to enhance its national security and counter threats from Yemen's Houthis. In exchange, Israel would establish relations with Somaliland, leveraging its historical success in agriculture and knowledge of the field to secure the base.

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International Cooperation

Germany is intensifying economic exchanges with China, with German companies investing heavily in the Chinese market. This cooperation helps control trade friction between China and the EU, ensuring supply chain stability.

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Digital Services Tax Hike

France is considering raising the Digital Services Tax (DST) from 3% to 5%, which could damage the economy and inflame trade tensions with the US. It may hinder digital trade and job creation, and undermine global tax talks, setting a destabilizing precedent for other countries.

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Challenges in Accessing Finance

German firms are facing challenges in securing loans due to economic uncertainty and hesitancy from banks. The Credit Constraint Indicator, measuring access to bank loans, is at its highest level in seven years. This is limiting business investments and job creation, negatively impacting economic growth. Germany's economy minister expects the economy to shrink by 0.2% this year, marking the second year of contraction.

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Economic Growth and Trade

Georgia has been an economic powerhouse since 2012, with impressive growth rates, poverty reduction, and foreign investment. However, its trade with the EU has been stagnant, with Georgia facing barriers and investigations, while its exports to the EU remain low compared to imports.

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Property Market Crisis

China's property market is facing a crisis, with a burst property bubble and falling real estate prices. The government has responded with stimulus measures, such as quicker credit for developers and support for renovations, but analysts argue that these measures are insufficient to address the market's structural challenges.

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US Tariffs and Trade Wars

US firms face economic turbulence due to tariffs and potential trade wars with China. This impacts industries like manufacturing and apparel, causing uncertainty and higher costs, affecting investment plans and supply chains.

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Thailand's Wage Hike Plan

Thailand's plan to raise the minimum wage to 400 THB (11.7 USD) a day has sparked concerns about its impact on small and medium-sized enterprises (SMEs), which make up over 90% of the country's workforce. While the wage hike addresses rising living costs, SMEs may struggle with higher labor costs and face challenges in staying competitive. However, the long-term impact could be positive, as SMEs may use this opportunity to invest in higher-value activities and improve efficiency.

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US-China Trade Tensions

The US and China are engaged in a trade war, with both countries imposing tariffs and sanctions on each other's companies. This has disrupted supply chains and impacted businesses, causing them to reassess their exposure to China. The US has also restricted investment in Chinese tech firms, particularly in advanced technologies such as AI and quantum computing.

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US Economic Performance

The US economy is strong, with positive indicators in equity markets, retail sales, and job creation. However, inflation remains a key concern for voters, and experts warn that Trump's proposed tariffs could lead to higher prices and impact geopolitics.

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Climate Change Impact

Thailand has been affected by intensifying storms and extreme weather events attributed to climate change, causing economic losses and casualties. The country is taking steps to address this, with Phase II of the Thailand Taxonomy focusing on the construction, real estate, manufacturing, agriculture, and waste management sectors.

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Economic Downturn

Germany's economy is facing a challenging period with a potential recession looming, lagging behind other advanced economies in terms of GDP growth. Structural issues, such as dependence on Chinese trade and energy prices, contribute to the downturn.

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Economic Contraction

Germany's economy is expected to contract by 0.2% in 2024, following a 0.3% decline in 2023, marking a second consecutive year of recession. This is due to a combination of conservative public investment, over-reliance on manufacturing and exports, external shocks like the Russia-Ukraine conflict, and structural challenges such as aging infrastructure and population.

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UK's Industrial Strategy

The UK government's new industrial strategy aims to steer the economy through the 21st-century challenges, with a focus on growth, clean energy, and investment in emerging industries like AI and robotics. However, there are concerns about regional inequality and a lack of consideration for geopolitics, Brexit, and support for traditional industries.

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Economic recovery post-COVID-19

France's economy is recovering from the impacts of the COVID-19 pandemic, which contributed to its high public debt. President Macron's previous "whatever it takes" strategy included state intervention and massive unemployment programs. The current government aims to reduce the deficit and restore fiscal order, but faces challenges in balancing spending cuts and tax hikes without negatively affecting businesses and families.

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Private Security Contractors in Gaza

Israel is considering using private security contractors, possibly including UK special forces veterans, to deliver aid to Gaza due to worsening conditions and security threats. This decision has sparked controversy, with critics arguing that it could be seen as a way to drive out the Palestinian population and settle the territory with Israelis.

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Zonal Energy Pricing

The UK is considering overhauling its electricity market by introducing seven market zones, each with its own price. This aims to address inefficiencies and reduce costs associated with constraint payments. However, there are concerns about potential impacts on clean energy projects and consumer bills.

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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.

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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.

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Record-high deficit and debt

France's financial future is under scrutiny as credit rating agencies assess the country's ability to manage its debt. The country faces a record-high deficit of €167 billion, or 5.5% of GDP, and national debt is projected to reach 114.7% of GDP, exceeding EU limits. This has led to political turmoil and uncertainty for investors, with potential impacts on borrowing costs and the country's vulnerability to market speculation.

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US-China Trade Diversification

The US is restricting investments into strategic sectors in China, prompting global companies to diversify their supply chains beyond China. India stands to benefit from this shift, particularly in the pharmaceutical and electronics industries, as it has a sophisticated industrial base and skilled workforce.

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India's Growth Projection

The International Monetary Fund (IMF) maintains India's growth projection at 7% for FY25, a drop from 8.2% in 2023 due to exhausted pent-up demand post-pandemic. The projected growth rate is considered 'relatively mediocre' by the IMF, which recommends structural reforms to increase productivity and resilience.

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US Presidential Election

The close race between Donald Trump and Kamala Harris is impacting markets, with Trump's potential victory seen as inflationary and detrimental to global trade. The election outcome will shape economic policies and international relations, affecting investment strategies and business operations.