Report Contents

November 23, 2020

Macro

WEEKLY POLITICAL COMPASS

BY Teneo Macro

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G20 leaders discussed how to distribute Covid-19 vaccines around the world. An EU-UK trade deal might finally be agreed in the coming days. Another major anti-government protest is expected in Thailand. The Tigray conflict continues in Ethiopia. In Germany, more fiscal support might be on the way. Meanwhile, travel and eating out subsidies will end in JapanItaly’s government might seek a widening of the budget deficit, Peru’s congress will settle a day to approve the new cabinet, and South Africa’s ruling ANC party will hold an executive committee meeting.

CHART OF THE WEEK

WEEKLY POLITICAL COMPASS 1

The number of people who believe that vaccines are safe varies not only across countries but also across educational and income levels within countries. In most places, people with lower levels of educational attainment and income tend to be less likely to think that vaccines are safe. This pattern is more pronounced in some countries; while only 35 per cent of Germans with elementary (or less) education strongly agree with the statement that “vaccines are safe”, the figure goes up to 64 per cent for individuals with university education. France, Russia, Japan and South Korea are the countries where skepticism towards vaccines seems to be most common – different public opinion data on the Covid-19 vaccine have also shown a similar trend in these countries.

WHAT TO WATCH

G20

G20 leaders declared that a Covid-19 vaccine should be available around the world but did not agree on the number of doses available to the global Covax scheme. Chinese President Xi Jinping told the G20 that Beijing is prepared to expand international cooperation on production and distribution of a coronavirus vaccine. Chinese companies have five vaccine candidates currently in phase 3 trials, and Xi indicated that his government will prioritize access for developing countries. The EU is also pushing for multilateral solutions, even if funding for the Covax initiative remains an issue. However, the real test for global cooperation will only arise once high-risk groups in developed economies will have received the vaccine.

UK/EU

A post-Brexit trade deal is finally being expected for the coming days. As discussed in the past, this would work well for the timing around the contentious UK internal market bill which will come back to the Commons next week. If the EU needs more time to translate the agreement into its 24 official languages, a special European Parliament session could be held towards the end of the year. Meanwhile, Chancellor Rishi Sunak’s budget review on 25 November will once more focus on additional spending. But the economic and fiscal situation will inevitably fuel debates about tax hikes and “austerity”, challenging the fragile political balance within the new Conservative electorate.

Thailand

Anti-government protesters plan a major gathering on 25 November at the headquarters in eastern Bangkok of the Crown Property Bureau, the agency that manages the monarchy’s wealth. They are demanding reform of the monarchy, which includes greater transparency and public management of its wealth and spending. The government has given protesters some leeway, but the increasing focus on the monarchy has raised the pressure on Prime Minister Prayuth Chan-ocha to respond more forcefully and future protests may result in more violent dispersals that raise social tensions.

Ethiopia

On 22 November Prime Minister Abiy Ahmed gave Tigrayan forces 72 hours to surrender. Although he seems to have brushed off an attempt by current African Union Chair Cyril Ramaphosa to push for peace talks, Abiy will reportedly receive three envoys this week –former presidents Kgalema Motlanthe (South Africa), Joaquim Chissano (Mozambique), and Ellen Johnson Sirleaf (Liberia). Yet both sides still seem far from joining the negotiating table. Indeed, a major military offensive on Tigray’s regional capital Mekele is in the offing this week.

Germany

According to leaked documents, the government is expecting another EUR 64bn in lockdown-related borrowing next year, raising the overall figure to some EUR 160bn. The short-term implication is that a further extension of restrictive measures – perhaps even into next year – is likely when Chancellor Angela Merkel meets the 16 regional state leaders on 25 November. The medium-term upshot is that the conversation about the “new normal” for spending, investment and public services looks ever more likely to be a key part in the campaign for the September 2021 Bundestag elections.

ON THE HORIZON

ASIA

Japan

Prime Minister Yoshihide Suga has announced that his government would scale back high-profile subsidies for domestic travel and dining out in response to a surging number of Covid-19 cases. The administration had resisted calls to limit or cancel the subsidies but Suga ultimately backed down after an urgent request from his own expert advisory panel and four days straight of record-setting numbers of new cases. The government is expected to withdraw subsidies for new bookings to travel to prefectures seeing the most severe outbreak and will urge governors to suspend dining out subsidies. The decision, which came at the start of a three-day weekend, could leave the prime minister open to criticism that he has reacted too slowly to Japan’s third wave.

India

Prime minister Narendra Modi will meet regional ministers on 24 November to discuss the Covid-19 situation and the vaccine rollout plan. Meanwhile, infection rates spike and some India-produced vaccines appear closer to success.

Malaysia

Parliament will vote on 26 November on the proposed 2021 budget with the real possibility that it may not receive majority support. Should this happen, the constitution allows parliament to approve an interim budget for salaries, pensions and debt servicing, as well as essential services. Politically, it would be taken as vote of no-confidence against Prime Minister Muhyiddin Yassin, but with the recent Covid-19 spike, it is questionable whether snap elections can be held, thus prolonging Malaysia’s political uncertainty.

EUROPE

Czech Republic

The government is starting a gradual easing of restrictions on 23 November. This comes after a notable drop in new Covid-19 infections as well as hospitalization and death rates over the past two weeks. Meanwhile, parliament is set to continue the adoption process of the 2021 budget – including a potential reduction in personal income tax as well as additional tax allowances – which is causing frictions in the governing coalition led by Prime Minister Andrej Babis (ANO).

Italy

A required parliamentary vote on the government’s request for EUR 8bn of extra deficit in 2020 will take place on 26 November. The government is also expected to seek a further widening of the budget deficit (likely around EUR 15-20bn) for 2021 in January.

LATIN AMERICA

Brazil

There is growing optimism that the so-called “emergency” constitutional amendment (PEC) will be voted in December. It is widely perceived that elections of presiding officers in both chambers of Congress may delay the reformist agenda until February. However, the emergency PEC cannot wait as it deals with two crucial spending rules: the spending ceiling – spending is conditional upon inflation growth – and the golden rule that bars borrowing to pay for mandatory expenditures. Apart from measures addressing Covid-19 or the continuing blackout in the northern state of Amapá, however, Congress is unlikely to resume voting on much. In addition, it is expected that government, Congress and the Federal Audit Court (TCU) will soon reach an agreement on allowing infrastructure funds earmarked for 2020 to be executed next year.

Peru

A date for Congress to approve the new cabinet should be settled early this week, potentially by 23 November. New caretaker president Francisco Sagasti appointed a well-balanced new cabinet last week to be led by lawyer Violeta Bermudez as prime minister (PCM). Two important portfolios have been well received: the experienced Waldo Mendoza as finance minister, while another veteran, Pilar Mazzetti, returns to the health ministry, the position she occupied under Martin Vizcarra’s recent administration. New cabinets must be approved by Congress within 30 days of their appointment; the eventual vote should pass as most parties will seek to project an image of responsibility after the crisis of recent weeks.

MIDDLE EAST AND AFRICA

South Africa

The ANC will hold a National Executive Committee (NEC) meeting next weekend. The agenda will be dominated by the thorny issue of whether an ANC member, specifically Secretary-General Ace Magashule, should step down if charged with corruption. Magashule’s fight against such NEC resolutions will provide a signal of the internal balance of power and President Cyril Ramaphosa’s strength. It may signal how bruising a battle the ANC’s 2021 National General Council (NGC) will shape up to be, and how much room for manoeuvre Ramaphosa has to tackle corruption and economic reforms, which are rendered even more urgent by South Africa’s latest double-downgrade from Moody’s and Fitch.

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