ICTF’s 2014 Global Trade Symposium

Hans Belcsak, Rundt’s Intelligence

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By Geographical Region

United States

Russia

China

MENA

Critical Developments

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The US Dollar

Global Oil Prices

De-Globalization

Nuclear Talks With Iran

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The United States

• Positive signals from the economy (3.5% after 4.6%, investment, jobs, leading indicators)

• Caveats, but we expect 2.5% for 2014• The mid-term elections (increased House

membership, control of Senate, 31 governorships

• Consequences– The pessimists: Republican “hell no” group, president adamant

– The optimists: Senate “roach motel” now gone– Problems with Obamacare, immigration policy– But some movement, Keystone XL, fast-track authority, some Dodd-

Franc changes

Russia

• Double whammy (biting sanctions and low oil)• Budget based on USD 100 pb (Urals)• Still has USD 430 billion in reserves• High interest rates, stagnation or recession• Rallying around the flag• Rapprochement with China• Will not deter Putin from aggression in Ukraine• Baltic nations the big risk

MENA

• Metastasized al-Qaeda• From Aqap and Aqim to al-Shabaab and

Boko Haram• Pure terrorism from ISIS• Enormous threat to adjacent nations• Extremely complex relationships• Homegrown extremists• Why this matters to business

China

• Slowed growth, soft landing (7.3% third quarter)

• Stimulus limited to minor moves• National debt = 251% of GDP (but domestic)

• Sees itself as pre-eminent world power• Near-term in the region• Stick and carrot approach• Determined to blunt Western influence• Growing nationalism, problems for foreign

investors

Nuclear Talks With Iran

• Overly eager US Administration• Rouhani no “moderate”• “Threshold” nuclear power• Regional arms race• Fears of the Sunni-led Gulf states• Existential danger for Israel• Saudi Arabia’s position

De-Globalization

• No progress on the Doha round• Regional attempts (Trans-Pacific Partnership, Free Trade

Area of the Asia-Pacific, US-EU agreement, Russia’s Eurasian economic area)

• Pressing Dublin on the “Double Irish”

Oil Prices

• Brent below USD 80 a barrel• Beneficiaries those that spend the most relative to GDP

(China, EU, Japan). Among industries: airlines, UPS and FedEx, trucking industry (69% of US freight tonnage)

• Double-edged sword: in the US, gas guzzlers (complicating 45.5 mpg goal), shale development

• Arguments within OPEC• Hard hit: Nigeria, Russia, Venezuela

The US Dollar

• Still with upside potential• Safe-haven qualities, end of QE-3, expectation

of higher interest rates• Unfair privilege for the US?• Attempts to replace:

• Yuan promotion, BRICs development bank, African commodity exporters (Angola, Mozambique, Ghana, Zambia)

• Won’t be successful• Needs deep markets, rule of law, ease of transaction (FX

bazaar turns over USD 5.3 trillion/day)

• The issue of carry trades

Brazil

• Rousseff won, unhappy markets• Selic to over 11%• Her own dismal legacy (recession, fiscal deficit, public

debt, current-account gap)

• Not Lula’s personality• Divided country (she did well in poor North and Northeast)

• Minor and temporary course corrections• Drought in Sao Paulo State

Venezuela

• Hit by oil and gold (71% of reserves)• Exchange rate gap 6.3 to 113.5• More transactions to Sicad 1 (12) and

Sicad 2 (about 50)• Limited amount to export (China, Cuba,

Petrocaribe)• Ad hoc measures (e.g., rationing)• Inflation 63.4%• Maxi-devaluation inevitable

Greece

• Hopes for Grexit without 3rd bailout• Optimistic budget for 2015 (2.9% growth,

tax cuts for heating fuel, solidarity tax)• Perspective: GDP still 25% down• Problems with company & household debt • Recent bond sales met good response• ECB has questions• Tricky presidential election next year

Ireland

• Economy is doing well• Finance Ministry: 4.5% for 2014• Much-improved external accounts• Standard corporate tax 12.5%• Core of industrial policy, but heavily criticized• The “Double Irish” (intellectual property

acquired)• Qualified pull-back (not all details are known yet)• “Knowledge Development Box”

Egypt

• Back to stability by repression• This allowed significant reforms (e.g. fuel

subsidy cuts)• Stormy relationship with the US• Now good, also with EU (Sinai help)• Elections will create rubberstamp body• USD 3.5 billion arms from Russia• USD 8.5 billion for Suez Canal expansion• Billions from Saudi Arabia, UAE (Muslim

Brotherhood ban)

Turkey

• From “only friends among the neighbors” to no friends

• Erdogan is an autocrat having pulled a “Putin”

• His position on Kobani is understandable, however

• Two banks in trouble – Denizbank and Bank Asya – have nothing to do with developments in Syria or Iraq

Tunisia

• Jasmine revolution, Ennahda’s failure• Interim government has met rising jihadist

violence (AQIM, Ansar al-Sharia)• Elections October 26 (parliament) and

November 23 (president). Ennahda and Nida Tounes may co-govern

• Worse external accounts (ccBoP 8.4%)• IMF USD 1.75 billion, 24 months• Hope for tourism, phosphates• For the dinar, look for further devaluation

Nigeria

• 2006-2014 US imports of oil from1.3 million bpd to zero• Not necessarily a disaster

• Stepped-up exports to Asia• Less significant to the economy

• GDP last April revised upward by 90%• Consumer market

• One in five of Sub-Saharan’s930 million people• 114 m cell phones, 55 m internet users, 11 m on Facebook• Economy forecast to grow 7.1% annually through 2030

• But:• Many weaknesses in infrastructure (housing & energy)• Boko Haram (questionable deal re Chibok girls)

India

• Now governed by Bharatiya Janata Party under PM Narendra Modi• Moving in the right direction• Subsidies for food, USD 18 billion p.a., minimum support prices 12

bio, fertilizers 10 bio, rural employment scheme 6 bio, cooking gas 3 bio, kerosene 3 bio.

• Archaic labor laws (comply with 100, violate 20)• Plans to improve infrastructure, open up defense and insurance• Gingerly beginning, but shift in political thinking• Just won two state elections (controls Lower House, but just 17% of

Upper House)• Indian-Chinese trade agreements• US complaints: sanctity of contract, protections for intellectual

property, retroactive tax hits

Indonesia

• President Joko Widodo (Jokowi)• Cabinet is no dream team, but competent• 18 technocrats among 34 members• Wants to boost growth to 7% (5.1% Q2)• Headwinds: China, commodity prices, QE3, 37%

control of parliament• Positive: popularity, ability to take matters

directly to the people. • Some signs of protectionism

Open Forum