There are signs that China’s economy is returning to life. The Bank of Japan has promised to provide liquidity in response to the coronavirus. The presidents of Russia and Turkey will meet. Greece would be most exposed to a new migration crisis. A no-confidence vote is being pushed against Malaysia’s new government. Meanwhile, snap elections are likely in Sri Lanka, UK/EU trade talks are beginning, various protests are ahead in Chile, and voters in Israel are heading to the polls for yet another election.
CHART OF THE WEEK
As the coronavirus spreads across Asia and Europe, countries and subregions display different levels of institutional capacity to address the challenge. These differences reflect even in high-level indicators such as hospital beds per 1,000 citizens. For now, the focus remains on trying to at least slow down the spread of the virus. Beyond statements by politicians, therefore, the underlying ability of any given country to effectively diagnose and treat patients will be a crucial factor to watch.
WHAT TO WATCH
China’s Purchasing Managers’ Indexes for both manufacturing and services posted record lows in data released Saturday, showing heavy contraction in February. But there are signs that the economy is returning to life. State planning officials from Zhejiang province, a manufacturing hub, indicate that 90% of industrial firms in the province had resumed operation by last week, though many are still understaffed.
Markets rallied Monday after Bank of Japan (BOJ) Governor Haruhiko Kuroda promised to provide liquidity and the BOJ immediately bought a large number of ETFs. The Japanese government more broadly is intensifying its virus response. The Diet has begun considering a special measures law that could empower Prime Minister Shinzo Abe to declare a national emergency. School closures begin this week despite some opposition. And the expansion of national health insurance coverage of tests this week could mean an increase in positive findings soon.
Russian President Vladimir Putin and his Turkish counterpart Tayyip Erdogan will hold talks in Moscow on 5 March. The goal is to defuse tensions in the Idlib region of Northwest Syria. Ankara and Moscow have an interest in such de-escalation as both countries still need each other in Syria and beyond.
Unlike in 2015, Greece’s border with North Macedonia is now well secured. A fence has also been built by Hungary along its border with Serbia and Croatia. Political majorities have changed in many places in Northern Europe, making the opening of borders unlikely. The migration route north is therefore much more complicated. The country most exposed to a potential new crisis is therefore Greece. As of the morning of 2 March, some 1,000 migrants had arrived by boat in Greek islands already overwhelmed by the existing refugee situation.
Former Prime Minister Mahathir Mohamad’s threat to push for a no-confidence vote may cause Prime Minister Muhyiddin Hassin to delay calling parliament. In the meantime, he attempts to consolidate support. While the new government may survive Mahathir’s efforts, its longer-term outlook is more uncertain, and the realignment of parties is likely to further stoke race and religious divisions in the country.
ON THE HORIZON
South Korean President Moon Jae-in pledged on Sunday to strengthen cooperation with North Korea to combat the COV-19 outbreak. North Korea, however, continues to insist that it has no cases, even as it has reportedly intensified containment measures and may be preparing to expel all foreign diplomats — already under quarantine in Pyongyang — on Friday. South Korea has seen the greatest spread outside of China and has strengthened its controls, including keeping schools closed again this week, but North Korea’s fragile healthcare system leaves it vulnerable to an outbreak.
Snap elections are expected to be called any time this week. The constitution enables the president to dissolve parliament and order fresh polls once parliament has completed four and a half years of its tenure, which it did on 1 March. President Gotabhaya Rajapaksa’s brother, Mahinda Rajapaksa is the interim prime minister and he alone will remain caretaker as all ministers will have to resign and seek a fresh mandate as the country heads for polls possibly in April.
The government will issue a decree this week with measures worth EUR 3.6bn (0.2% of GDP). The goal is to alleviate the economic impact of the largest outbreak of Covid-19 outside Asia. More than 1,500 cases have been registered since the contagion emerged. The package will come in addition to the EUR 900mn worth of measures for the hardest hit areas unveiled late last week.
The center-right Ordinary People (OLaNO) party has won the parliamentary elections on 29 February. This week, President Zuzana Caputova (Independent) is expected to nominate OLaNO’s chairman Igor Matovic to form the next government. Matovic will seek to forge a four-party coalition that would hold a constitutional majority (95 out of 150 mandates) in parliament. The OLaNO-led government is expected to prioritize anti-corruption reforms, adopt a conservative stance on public finances and social issues, and maintain a pro-European and pro-NATO foreign policy course.
The UK and the EU are beginning their trade talks today, 2 March. Against the rising tide of populism, the question of not just free but also fair trade has become a central focus for policymakers across rich democracies. In this light, it would already be positive if the EU ended up not treating the controversial question of fishing rights as a make-or-break issue for an overall deal, but rather just as the precondition for continued UK fish exports into the single market. In the meantime, the UK will also try to broker a deal with the US. Ongoing political change in the UK, the limited benefits of zero tariffs/quotas for the services-dependent UK economy, and the prospect of regulatory negotiations for a decade or so, all raise the risk of the UK walking away from the EU with no-deal in December.
President Volodymyr Zelensky has called for an extraordinary parliamentary session on Wednesday, 4 March.The focus will be on law enforcement and anti-corruption issues, but there may also be proposals to reshuffle Prime Minister Oleksei Honcharuk’s (Independent) cabinet. Despite sliding public approval ratings for Honcharuk and his government, the overhaul of the reform-oriented cabinet just six months after taking office may be interpreted as a negative signal to reform continuity by Ukraine’s international partners and investors.
President Jair Bolsonaro will start the week meeting with Senate and Congress Chairman Davi Alcolumbre.They pair will discuss presidential vetoes against permitting the rapporteur of the Budget Guidelines Law (LDO) to define which projects would be eligible to receive BRL 30bn (USD 7.2bn) of the total BRL 46.2bn (USD 10.3bn) in government funds set out in parliamentary amendments in the draft. An agreement had been reached between the government and Congress but the government is now considering dropping the agreement and allowing the matter to go to a vote. The government is confident that it has the absolute majority of senators on its side, which is sufficient to maintain the veto even in the presence of a likely opposite majority in the House. The vote may take place on 3 March.
Today, 2 March, has been dubbed “Super Monday”, as schools and places of work re-open after the January-February vacations. Beyond today, various protest marches are planned for this month, most notably on 8 March to mark International Women’s Day. President Sebastian Pinera has already warned that his administration and security forces are much better prepared for public order problems than they were when serious unrest first broke out last October. Congress also resumes sessions from today following the February recess, with several initiatives on the agenda; these include the government’s pension reform, which has won lower house approval but faces a tougher test in the Senate, as well as health, minimum guaranteed wage, and security reforms.
MIDDLE EAST AND AFRICA
As voters head to the polls for another general election today, 2 March, it is possible but unlikely that PM Binyamin Netanyahu will be able to cobble together a ruling coalition. It also remains possible though unlikely that the Likud Party will split, and Netanyahu’s challenger Benny Gantz will be able to form a unity government with a faction of Likud that has abandoned the incumbent PM. The most likely outcome, however, is that Israel’s government crisis continues until some aspect of Netanyahu’s corruption trial either exonerates him or renders him ineligible to serve.
The ANC’s National Working Committee (NWC) meets on 2 March. The ANC’s alliance partners, trade union federation COSATU and communist party SACP, have been invited to participate. The encounter will be seen as a first test of the ruling party’s ability to implement Finance Minister Tito Mboweni’s budget plan to make ambitious cuts to the public-sector wage bill. The government is under massive pressure to demonstrate progress amid economic stagnation (GDP data for Q4 2019 is due on Tuesday) and the looming loss of South Africa’s final investment-grade credit rating from Moody’s.