We're heading into the final stretch of 2018, which means Stratfor is releasing its Fourth Quarter Forecast on Monday, Sept. 10. As always, to hold ourselves accountable to our rigorous analytical process, we're checking in on how the first three quarters of 2018 have played out in comparison to our forecasts.
- We said that one of the biggest domestic problems of Chinese President Xi Jinping's administration would be the massive and complex mountain of debt facing the country's local and regional government, state-owned corporations and, increasingly, households. Specifically, we anticipated that 2018 would also bring extra strain as high maturity rates are applied to overlapping corporate and local debts over the next three years. And following that trend, in August, a financing vehicle linked to the local government in the western province of Xinjiang was, at one point, just hours away from becoming the first government-linked financing vehicle to default in a decade.
- As China continues to increase its presence on the world stage, we forecast that Beijing would exert a combination of diplomatic and military pressure to decrease Taiwan's international standing. Those efforts came to pass, resulting in El Salvador cutting ties with Taipei in August.
- The Philippines continued its conciliatory outreach to China, which began when the Duterte administration took power in 2016, shifting away from its predecessors' often confrontational approach. We said, correctly, that Duterte's main goal would be to free up resources for domestic issues, first and foremost the restive Moro Muslim south. With the passing of the Bangsamoro Organic Law in July, the government intends to empower Moro political leaders interested in cooperating with Manila in the hopes of sidelining hard-line groups and securing the region in the long term.
- 2018 has been another year of economic decline for Venezuela. In our forecast, we noted that the country's struggles would increase the risk for political unrest: Such turmoil manifested itself in the drone attack against President Nicolas Maduro in early August. We also anticipated correctly that many Venezuelans would continue to leave the country as opposed to staying and protesting, making it hard for any momentum to build against the government.
- We also noted that the outgoing Brazilian government would continue to work on a number of long-term priorities before October's elections: free trade agreements through the Common Market of the South (Mercosur), reform of the pension system and the privatization of certain state-owned assets. Mercosur negotiations continued with the European Union, European Free Trade Association, Pacific Alliance, Canada, South Korea and Japan, while a vote on pension reform is expected after Nov. 1. In July, the Brazilian National Congress also passed a bill permitting the privatization of six electricity companies.
- In our annual forecast, we stated that the United States would try to conclude talks on renegotiating North American Free Trade Agreement (NAFTA) in the first half of the year before Mexico welcomes a new administration and Washington ushers in a new Congress. While the Trump administration did not reach its goal of concluding a deal by June, it is using Mexico's five-month lame duck period to try to finalize some version of a trade deal, even if it is just bilateral.
Middle East and North Africa
- Iraq's May elections produced some surprises but mostly played out as we expected. We forecast that Iran-backed political groups would perform well and that citizens across the country would respond positively to the nationalist rhetoric of Muqtada al-Sadr. Indeed, al-Sadr's coalition received the most votes in the elections, followed by the group led by Iran's close ally and Shiite militia group, the Badr organization.
- As Turkey attempts to increase its political, security and economic influence across the Middle East, we expected to see the emergence of a relationship between Turkey and GCC outlier Qatar. However, we expected much of the outreach to be from Ankara to Doha. What we did not expect was the extent of the economic crisis that would befall Turkey, which prompted Qatar to step in to relieve at least some of the economic pressure.
- It has been two years since Russia entered the Syrian conflict, and Moscow is now eager to find an exit route. But, as we said in our forecast, doing so will require managing the conflicts between many different stakeholders. This quarter, we watched Russia negotiate between major players Israel and Iran in an effort to establish a buffer zone near the Golan Heights region.
- Rhetoric and summits aside, 2018 has not brought any substantial improvement in U.S.-Russia relations. Expecting this, we forecast that Russia would increase their outreach to and engagement with China, especially in the defense sector, amid the possibility of joint military exercises and cooperation. This has come to pass with China's participation in Russia's massive Vostok 2018 military drills.
- As the European Union faces more threats to its cohesion, we expected that efforts to reform the bloc would be a major theme of the year. While France and Germany have historically espoused different approaches to reform, we anticipated more "cooperation than confrontation" this year. That proved true when German Chancellor Angela Merkel and French President Emmanuel Macron came to a compromise agreement between Paris' push for major structural reform and Berlin's desire for a more cautious approach. The Meseberg Declaration was presented to the European Council at the end of June.
- The British government has spent much of 2018 managing two related challenges that we forecast: negotiations with the European Union on the terms of a Brexit deal and navigating domestic political challenges from the opposition and within the Conservative Party. Throughout the year, differences grew within the Cabinet of Prime Minister Theresa May over how to best manage Brexit. The matter finally came to a head with the resignations of Foreign Minister Boris Johnson and chief Brexit negotiator David Davis in July.
- We forecast that the European Union would finally address the ongoing challenges of the increasing number of economic migrants and asylum seekers. As we predicted, intra-EU divisions prevented the bloc from reforming the Dublin system and changing the way that asylum seekers are distributed within the bloc. Our forecast that the European Union would work with migrants' countries of origin to try to slow migration and disrupt human-trafficking organizations also proved accurate, as the European Union announced more funds and more logistical assistance for countries along the main migration routes in Africa.
- While a tactical detente occurred between India and China in 2018, the two countries are still locked in a strategic competition for influence across the Indo-Pacific. As we anticipated, this has pushed India to make overtures to the United States and Japan, especially on matters of security. In August, the defense ministers of Japan and India (Link: India, Japan: Defense Ministers Agree to Increase Ties) met as part of increased cooperation, while the U.S. secretaries of state and defense visited New Delhi in September on the same matter.
- In the lead-up to Nigeria's elections in 2019, we expected that President Muhammadu Buhari's All Progressives Congress (APC) party would face many challenges, particularly through the loss of members to opposition parties. During the quarter, there were several rounds of mass departures from the APC to either the People's Democratic Party or to a newly formed opposition party.