It’s easy for people who make a living predicting the future to be seduced by the unassailability of their predictions. And it’s understandable why this would be the case. A prediction can be wrong and, in being wrong, can undermine the credibility of the person who issued it. But there are worse things than being wrong, like being unaccountable. Without accountability, forecasters are nothing more than false prophets, baking into their worldview just enough truth to seem believable but not enough to ever be proved wrong. Without accountability, the predictions determine the process – and not the other way around.
We at GPF believe we have a responsibility to inform our readers how are forecasts fare throughout the year and, if they fare poorly, to correct any mistakes we may have made by updating our forecasts.
With that in mind, we present our mid-term report card on the 2017 forecast, which we published last December. Below is a graphic with a condensed version the report card, followed by a more thorough report assessing the most important forecasts we made for 2017. We have defined our grading system as follows:
A: Forecast fulfilled
B: Forecast on track but not yet fulfilled
C: No movement toward fulfillment but still likely or at least possible
D: Significant failure in forecast
F: Forecast wrong
NF: Not forecast
Our 2017 forecast is generally spottier than our 2016 forecast. Some predictions – early signs of a U.S. recession, China’s bending to U.S. pressure, oil prices remaining low and wreaking havoc on countries like Saudi Arabia and Russia – have already proved out. But a couple misses bring our overall grade down considerably. First, we expected exports to decrease in Germany and economic growth to stagnate more generally in the European Union. After six months, both predictions are looking suspect. We aren’t quite prepared to say the forecast is inaccurate – a lot can happen in six months, especially if recessions in destination markets discourage the buying of German exports – but we certainly have not seen the progress we thought we would.
Second, we underestimated how influential North Korea would be. Those who have followed our writing closely know that we quickly shifted gears when it became clear that North Korea’s missile tests had crossed a U.S. red line. We now believe there is a good chance the United States will attack North Korea in the near future. So even if our new assessment – that Washington will soon come to blows with Pyongyang – is correct, the initial assessment – that North Korea would play only a minor role in geopolitics – was wrong.
In addition to the letter grades for individual items, we have also given the forecast an overall numerical grade. Because we are at the halfway point of the year, many of the grades so far are clustering in the middle with a mark of “C.” A “C” means there has been little movement toward the forecast coming true or that not enough has happened to judge one way or the other. A “C” therefore has a value of 0. An “A” or “B” has a value of +1, and a “D” or “F” has a value of -1. (Our call on German exports and EU economic performance, for example, nets us a “C,” while our call on North Korea nets us a “D.”) By this rubric, our midway score is 68 – a disappointing number, considering how successful our 2016 forecast was. Still, a lot can happen in the next six months, so we may need to revise the grades (hopefully up) and thus our overall score.
Our first goal at GPF is to be right. If we can’t always be right, we can at least be honest about when we are wrong and work quickly to correct our mistakes. Not everyone will agree with our forecasts, and not everyone will agree with the grades we have assigned ourselves. But we hope you, our reader, will recognize our commitment to transparency, accuracy and accountability. Please let us know one way or the other.
Jacob L. Shapiro
1. “A recession most likely will not come in 2017, but by the end of the year the signs of a recession may become apparent.”
The U.S. economy has started to show signs of a coming recession, though its gross domestic product grew in the first quarter by 1.2 percent. In mid-June, the U.S. Federal Reserve increased the federal funds rate by 0.25 percent, giving the bank more flexibility to act in future scenarios. Current sales of long-term bonds are also a sign that long-term interest rates are going to go up as well.
At the end of June, meanwhile, the U.S. Treasury yield curve was the flattest it has been since 2007. The flat portion of the curve often precedes a recession. This comes largely from the U.S. Federal Reserve taking initial measures to tighten monetary policy. Though the indications of a recession came a little sooner than we anticipated, we still think 2017 will be recession-free.
2. “The U.S. will look to enforce or renegotiate trade deals such as NAFTA so that they are more advantageous to the U.S. … Further multilateral trade agreements are unlikely.”
In May, the U.S. government gave official notification that it would renegotiate NAFTA, a process that will begin as early as Aug. 16. U.S. trade officials have said it is essential to update the rules of origin in the agreement, and unions have said that labor laws should be re-examined so that there are no disparities among NAFTA signatories.
The Trump administration withdrew from the Trans-Pacific Partnership, a sprawling multilateral trade agreement of countries around the Pacific Rim. It also demurred from reviving negotiations for the Transatlantic Trade and Investment Partnership. Washington has instead opted to pursue commercial ties on a bilateral basis.
3. “The U.S. will seek to redefine trade relationships on a basis more advantageous for the U.S. and China will be the first target … China will have no choice but to accept some of Washington’s demands.”
This forecast is on its way to being back on track. Early in the year, the White House engaged with Beijing on more equal footing, downplaying campaign rhetoric on trade issues and steering clear of provocative moves in Southeast Asia. More recently, though, U.S. policy toward China has become assertive again in several areas, including Chinese steel trade and the resumption of freedom of navigation operations in the South China Sea by the U.S. Navy.
The U.S. has not clearly defined what its economic relationship with China will be, and China does not appear all that willing to cater to Washington’s demands. China has been pegging the yuan to the U.S. dollar for most of the year. A trade agreement was finalized in May, but gains and losses were confined to a handful of sectors and will be contingent on implementation.
The U.S. has been relatively quiet in the South and East China seas. This is partly because the mutual need to cooperate on threats such as North Korea has put these issues on the backburner. China has been complying broadly with Washington’s demands regarding North Korea. It appears to be cracking down on Pyongyang’s coal exports, supporting financial sanctions on North Korean institutions and pressuring its own firms to refrain from hiring North Korean labourers.
4. “The U.S. will maintain close military relationships with key countries such as Japan and will push those countries to take on more of the burden of containing China, as well as North Korea. The U.S. will continue to develop closer ties with India and will maintain relations with smaller countries like the Philippines.”
The new U.S. administration quickly dispelled early doubts about its military commitments to its core allies in the Asia-Pacific. Washington is apparently even trying to increase defense assistance to regional allies. Japan cemented ties with the Trump administration and has continued to expand its influence throughout the region. Australia is treading more lightly but is still preparing to halt Chinese assertiveness in the southern half of the Asia-Pacific. It is enhancing cooperation with Indonesia in particular and is substantially boosting spending and investment in its naval industry.
India and the United States have continued to gradually boost cooperation through joint naval exercises. The U.S. has also been nudging India to strengthen defense cooperation with Australia, Japan and Vietnam. In the Philippines, despite President Rodrigo Duterte’s anti-U.S. rhetoric and the scaling back of some aid and cooperation, the United States has continued bilateral military exercises and quiet support for counterterrorism efforts in Mindanao. The Trump administration has made small moves to restore cooperation with Thailand, while Vice President Mike Pence’s trip in April demonstrated how high a priority Indonesia is. In Vietnam, Washington has gradually improved military ties, much as it has for the past decade, and in Singapore the U.S. government is planning to enhance its naval presence. The United States’ main setback has been in Cambodia, which canceled annual joint exercises with the U.S. and expelled a U.S. Navy aid program.
5. “The U.S. will increase cooperation with Russia in fighting the Islamic State in the Middle East. Relations between the U.S. and Russia will improve in 2017 … but the underlying fundamentals of the relationship will remain the same.”
The changes in U.S.-Russia relations in Syria are not as dramatic as they may appear. In fact, Russia’s strategy in the Middle East hasn’t really changed. Its goal is to make the United State’s task there just hard enough to compel Washington to seek Russian help in resolving the conflict, giving Moscow a better negotiating position in areas that matter more – namely, Ukraine. In addition, some tension remains over Western-led economic sanctions that have hurt the Russian economy. Sanctions were renewed in June.
Despite some notable setbacks – after the United States bombed Shayrat air base, for example, Russia said it would consider all Western coalition aircraft potential targets – there is still evidence of cooperation in the fight against the Islamic State.
6. “The U.S. will work with the Turks to stabilize the situation in Syria at the expense of the Syrian Kurds.”
Washington had hoped Ankara would take the lead in Syria against the Islamic State, with the Kurds providing auxiliary support. But they could not find common ground. The Americans see the Kurds as a partner in the fight against a common enemy; the Turks see them as a threat to their national security. Turkey is too distracted with problems at home to expand into Syria right now anyway. It strongly opposed U.S. backing of the Kurdish-led Syrian Democratic Forces, which are now at the vanguard in the fight against the Islamic State, but there was little Ankara could do about it.
7. “The U.S. will increase cooperation with Iran in the fight against IS in Iraq.”
Iran has been extremely influential in Iraq, even during U.S. occupation. When it became clear that the United needed to cooperate with Iran after the Islamic State took Mosul in 2014, Iran became all the more influential. Tehran has supported the security forces of the Shiite-dominated government and has helped the Popular Mobilization Forces, a mostly Shiite militia. In some ways, the offensive against the Islamic State has been supervised by Maj. Gen. Qassem Soleimani, commander of the Quds Force, the overseas arm of Iran’s Islamic Revolutionary Guard Corps. But as IS loses territory, the government in Baghdad will need to incorporate more Sunnis into its ranks, even as it receives support from Washington that Iran cannot provide. Iran will therefore have a harder time dominating Iraq as it tries to reach an understanding with the United States. But since they have such different visions for Syria, and since the only thing bringing them together is the Islamic State, it’s hard to imagine they will actually reach an understanding.
8. “[U.S. President Donald] Trump will try to end U.S. wars, but he will not be successful in 2017. The U.S. will not have the troop levels or political will necessary to defeat IS by itself.”
The United States has only a few thousand troops in Syria and Iraq, and it has no plans to send many more. In Iraq, operations are led by Shiite-dominated government forces, which are supported by Shiite militias and Kurdish peshmerga. In Syria, operations are led by the Syrian Democratic Forces, which are composed largely of Kurdish fighters.
The Islamic State has all but fled Mosul, and though the assault on the group’s capital of Raqqa has begun, the war is far from over. U.S. forces in Iraq and Syria will continue to lead local partners in both countries for the foreseeable future.
The situation in Afghanistan, meanwhile, continues to deteriorate as the Taliban insurgency gains strength and as the Islamic State bolsters its presence there.
9. “Germany will see a drop in its exports in 2017.”
10. “While Brexit will continue to have a political impact on Europe in 2017, it will have a limited economic impact on Britain and EU member states.”
While the final impact of Brexit remains to be seen, it has clearly affected European politics. Other secessionist groups are studying the U.K. as a potential model for how to break away from the union, and the way the process plays out may determine whether other regions seek autonomy. In the meantime, business ties will stay largely intact so long as the U.K. is a member of the EU. That will change once it leaves the bloc, but the details of the changes will depend on the specific trade barriers built during negotiations.
11. “The Italian government will continue to struggle with this ongoing [banking] crisis in 2017.”
Though Italy’s banking system still faces serious problems, the government in Rome has devised some solutions that could begin to relieve banks of their bad debt. The European Central Bank’s agreement to a precautionary capitalization of Monte dei Paschi di Siena and the acquisition of Banca Popolare di Vicenza and Veneto Banca by Intesa Sanpaolo are just two examples.
Italy has also stopped adding to, and in some cases has subtracted from, its nonperforming loan growth. It did so in a “decentralized” way – that is, circumventing troubled banks. Both UniCredit and Intesa, Italy’s biggest banks, have implemented large restructuring programs and have significantly cut costs, enabling them to fix their nonperforming loan issues without state aid.
12. “Further political ramification will emerge [in Italy], including more calls for nationalist economic policies and clashes with directives from Brussels. Italy will resist EU directives or German austerity measures to address NPLs.”
The euroskeptic Five Star Movement party has delayed a referendum vote, but it is still calling for nationalist economic policies meant to resist any EU austerity measures. And though the party did not perform as well as expected in recent municipal elections, it is still polling higher than any other party (at the time of publication) for upcoming national elections.
Italy’s primary objective in negotiating with the European Central Bank was to prevent retail investors of senior bank debt from incurring debt. In the bailout deals reached this year – involving Monte dei Paschi di Siena, Banca Popolare di Vicenza and Veneto Banca – senior creditors avoided losses entirely. These deals may have followed existing ECB regulations, but the fact that the ECB didn’t put up much of a fight suggests Italy is successfully resisting the bloc’s directives.
13. “Eastern European countries’ growth in 2017 will be supported mostly by domestic demand, while the slowdown in Western Europe, particularly Germany, will keep growth low.”
While growth was not quite as low as we anticipated, Eastern European economic growth was indeed driven largely by domestic demand. There were other contributing factors that varied by country. But strong domestic demand was the primary cause throughout the region.
14. “U.S. and NATO enforcements on the eastern containment line will continue.”
The four NATO battlegroups meant to enforce the eastern containment line were fully deployed in June. They include rotational units in Latvia, Estonia, Lithuania and Poland. Canada leads the mission in Latvia; Germany and the U.K. lead the mission in Lithuania and Estonia; and the U.S. leads the mission in Poland. The U.S. has increased spending (by 40 percent) for the European Reassurance Initiative, a special fund created to protect against Russian aggression after the invasion and annexation of Crimea in 2014. In January, the U.S sent 2,800 pieces of military equipment that will be used by nearly 4,000 U.S. troops in exercises on NATO’s eastern flank. The U.S. has also announced it will spend as much as $100 million upgrading Kogalniceanu, its military base in Romania.
15. “The U.S. will pressure the Europeans to commit to NATO. While they will agree to do so, we doubt that they will live up to their financial commitment to the organization.”
Central to U.S. President Donald Trump’s platform was a commitment to pressure NATO members to spend more money on the military alliance. The results have been mixed. So far, only five countries spend 2 percent of GDP on defense, the target for NATO members. These countries are the United States, the United Kingdom, Estonia, Greece and Poland. Romania is expected to spend that much too in 2017, as are Latvia and Lithuania, though not until 2018.
Of course, 2 percent of Romania’s GDP is not as much as 2 percent of France’s or Germany’s GDP. So while one additional country has committed to meeting the spending target, it is a small country, and larger ones have remained reluctant. (It’s worth noting that Eastern European countries are more amenable to the spending requirement than Western European countries.)
16. “We will likely see renewed calls for secession and independence coming from European communities and regions that disagree with their national governments.”
The underwhelming performance of the Scottish National Party in the recent election means that Scotland will likely not hold a second independence referendum – at least not this year. Catalonia has called for one to be held in early October. Madrid continues to claim that Catalonia’s regional government does not have the legal standing to secede from Spain, regardless of the vote’s outcome.
17. “The refugee crisis will continue in 2017, posing both economic and security problems for European governments. Differences between European countries on how to deal with the crisis will continue and border controls are likely to be extended.”
National interests continue to trump EU interests in resettling refugees. Different solutions have been floated, including plans that would allow Eastern European states to relocate refugees to other countries. Some countries have rejected resettlement quotas. Italy has demanded that other countries take on a greater share of the refugee burden. Opposition to open borders for refugees has materialized in Germany too. And the Czech Republic, Poland and Hungary have been sanctioned by the European Union for refusing to take part in refugee resettlement.
Immigration continues to create economic challenges for countries in which wages have been depressed, adding fuel to the fire of nationalist parties.
18. “The Russian population will begin to feel the effects [of low oil prices], and this will become the main focus of the Russian government. The countryside will increasingly descend into a real crisis and that will begin to turn public opinion against the current government. We do not expect the government to be challenged in 2017.”
Wage arrears haven’t increased, and neither have labor protests, though they have notably persisted at a relatively low level. Increased bank closures and a rise in bankruptcies will only add to the Kremlin’s worries.
Opposition protests in June, meanwhile, were larger than expected. More than 100,000 people gathered in more than 100 cities. (Thousands were arrested in Moscow and St. Petersburg.) Local governments quelled some of the protests, but that they were forced to do so only proves how dissatisfied some people are in the countryside. Yet overall public support for Russian President Vladimir Putin remains high. The government is pretty clearly in control of the opposition movement, and with no contender to challenge Putin, our forecast appears to be on track.
19. “Oil prices are not going to rise enough in 2017 to offset Russian expenditures, and that means Russia will remain in a difficult financial situation. Russia will therefore run a budget deficit and begin to exhaust its reserve funds.”
The price of oil is just below $50 dollars per barrel (at the time of publication), widely considered the break-even point for U.S. shale producers. U.S. production has been growing since last year, but consumption fell by 1 percent between the last quarter of 2016 and the first quarter of 2017.
Russia’s Reserve Fund will run out of money in 2017, according to the country’s finance minister. The Reserve Fund typically is filled by oil and natural gas revenue (sometimes to the tune of 10 percent of GDP each year). But as oil revenue has fallen, so too has the amount of money in this financial vehicle. Moscow will soon be forced to use the National Wealth Fund to cover government expenditures.
20. “Ukraine will remain Russia’s top national security priority in 2017, and Russia will seek to continue the frozen conflict in Ukraine.”
Russia lost Kiev in 2014 and, with it, most of Ukraine, its most important buffer state. It needs to keep Crimea, so it must make sure the conflict in eastern Ukraine stays frozen. To that end, Moscow said it would prepare “countermeasures” after the United States and the European Union extended sanctions in June. More fighting broke out in eastern Ukraine shortly thereafter. Moscow and Kiev prefer it this way; Russia gets its buffer, and Ukraine gets the Western aid it sorely needs.
21. “By the end of 2017, we will see [Chinese President Xi Jinping] become a de facto emperor as a means of preventing unrest and regionalism brought on by China’s economic woes. Xi … will continue to consolidate power through his anti-corruption campaigns and direct oversight of the People’s Liberation Army.”
Xi has continued to consolidate power ahead of the Party Congress, scheduled to take place sometime near the end of the year. He has done this by taking control of key ministries, attempting (with some success) to silence dissenters abroad, executing his anti-corruption campaign, and tightening control over the media and nongovernmental organizations — all while slowly implementing economic reform that could incite domestic unrest. Criticism from Guo Wengui, a Chinese billionaire living in self-imposed exile in the U.S., highlights the intensity of the ongoing contest for power. The extent of Xi’s success will not become clear until after the Party Congress, where the president will try to install loyalists in the next Central Committee and in other positions of power.
22. “China has a number of underlying economic problems as a result of slowing growth, and these problems will continue. We expect unemployment to rise in 2017, but … it will not challenge the Communist Party’s rule.”
Housing prices appear to be coming under control, as have capital outflows and currency volatility. Beijing is slow-playing – or avoiding altogether – the painful reforms needed to address looming issues like ballooning local government and corporate debt and reining in unsanctioned investment vehicles.
Meanwhile, China’s official unemployment rate fell below 4 percent, for the first time since 2001, at the end of the first quarter. Official employment statistics in China are deeply flawed since they do not account for hundreds of millions of migrants unable to register for unemployment benefits, and Beijing has a history of massaging statistics for political ends. The official figures, moreover, do not account for underemployed workers being kept on the payrolls at China’s bloated state-owned enterprises or for its myriad “zombie firms” — a latent risk that could cause a destabilizing spike in joblessness if these firms are forced to downsize. Thus, the risk of an unemployment crisis remains, even if there’s no evidence yet to suggest it will come to a head in 2017.
23. “China will continue to modernize its military and navy and to trumpet its many achievements … but it will remain the weaker power in the U.S.-China relationship. China will feel pressure from the U.S. and will look to respond in asymmetric ways in 2017, such as involving itself in the domestic affairs of other countries in the region.”
China’s military modernization continues. But though the pace of its military development remains remarkable, no developments this year suggest that China will approximate the U.S. Navy’s blue-water capabilities — the United States’ foremost way of projecting power. China’s main focus remains developing the ability to deter attacks from, and project power into, its near-abroad. This focus will narrow the gap between China and the United States on China’s home turf, but it will not solve Beijing’s bigger problem: the U.S. ability to cut off sea lanes critical to the Chinese economy.
And so China has continued to build out its asymmetric capabilities, relying heavily on economic statecraft to cultivate relationships across East and South Asia. It has also redoubled its efforts to develop alternate means of access to global trade routes, particularly through the massive infrastructure projects included in its One Belt, One Road initiative. China’s willingness to use economic leverage in neighboring countries for political ends, meanwhile, has been particularly noticeable this year in South Korea, Malaysia, the Philippines, Thailand, Myanmar, Sri Lanka and Australia.
24. “Japan will increasingly appear to be the decisive power in East Asia. Japan will take a more defensive posture to threats and will explore ways to assert its interests in the region.”
Japan’s long-term trajectory remains on track, though 2017 was always unlikely to be a pivotal year in that regard since China is still the regional center of gravity. Japan has nevertheless been a welcome proxy for the U.S. on several regional issues. In the Philippines, for example, it has cultivated a warm relationship with President Rodrigo Duterte, countered China’s economic diplomacy and boosted security assistance and cooperation. For the first time, its military participated in exercises in the Philippines and in Thailand — a landmark step in Japan’s remilitarization — and its largest warship, the JS Izumo, has been making port calls around the South China Sea. Meanwhile, across Southeast Asia, its healthy flows of investment and official development assistance are providing regional states an alternative to Chinese support. With support from Australia and Singapore, Japan has tried to integrate the region by reviving the Trans-Pacific Partnership and reshaping its Chinese replacement, the Regional Comprehensive Economic Partnership. Domestically, it has been steadily boosting its missile defenses, joining U.S. preparations for potential military action in North Korea, and laying the groundwork to amend its war-renouncing post-World War II constitution.
25. “There will be much diplomatic outrage, but no war [in North Korea]. Barring a collapse of the regime in Pyongyang (which we do not expect in 2017), the country is not significant to the overall global system.”
The current standoff on the Korean Peninsula may in time be little more than a blip amid the competition between the region’s bigger powers. But North Korea’s progress in its nuclear and ballistic missile programs has been the dominant issue in the Asia-Pacific so far in 2017, demanding attention from regional and outside powers, big and small. This is because the situation in North Korea is nearing an inflection point. Our original forecast changed dramatically when the U.S. began putting the pieces in place for war in the spring, making its intentions toward the North clear. Given the North’s advance in developing missiles and the apparent U.S. moves to push for a more immediate resolution, diplomatic or otherwise, 2017 is highly unlikely to end with the status quo intact.
26. Jihadist activity in the Philippines
We did not expect jihadist groups in the southern Philippine region of Mindanao to be able to coalesce under the Islamic State flag, attract support from groups outside the IS network, and display a show of force the size of the ongoing siege of Marawi city. We therefore also missed what has turned out to be a catalyst for substantially increased security cooperation among Southeast Asian states and outside powers.
27. “In 2017, economic issues tied to reduced revenue from energy exports and Russia’s weakening economy will further destabilize the entire region. Kazakhstan, Uzbekistan and Turkmenistan are the most vulnerable countries.”
The reports of a pending economic collapse in Turkmenistan suggest that the destabilization is approaching critical levels in the country. Turkmenistan is heavily dependent on natural gas exports. In the past few years, it has experienced a significant drop in revenue after Russia and Iran reduced imports. China remains its main export destination, but revenue flows have taken a hit because Turkmenistan owes so much money to China. Kazakhstan and Uzbekistan, meanwhile, remain vulnerable but have not yet shown signs of financial destabilization. Instead, they show signs of civil unrest and Islamist militancy. These indications are more apparent in Uzbekistan, where the government has been appeasing traditional religious movements, even Islamist ones, because it is likely under pressure from them to do so.
28. “[Indian Prime Minister Narendra] Modi will try to increase the power of the state in 2017 by attempting to centralize control over the economy and boost the popularity and power of his political party. The negative fallout from his failure to do so will manifest in lower GDP growth and political infighting in 2017.”
The government spent the first half of this year preparing major tax reforms. The Goods and Services Tax unifies India’s notoriously variegated states under a single tax scheme. And the government now requires a national biometric identification to be linked with income tax filings to better track payments and prevent tax evasion.
Our forecast expects the Indian economy to be weaker in 2017 than it was in 2016. Available data for 2017 validates the forecast somewhat, as the government takes action to respond to slower growth, slightly lower manufacturing and low inflation. In the first quarter of the year, India’s GDP grew 6.1 percent from the last quarter of 2016 – a decline from the 7 percent growth between the fourth quarter and third quarter. The manufacturing purchasing managers’ index is on par with last year but the services PMI, even at a seven-month high of 52.2 in May, still lags behind the 54.3 score seen prior to demonetization last year. Inflation stands below the 4 percent target at roughly 3 percent.
Despite some infighting, Modi has consolidated power thanks to some important state election victories in Uttar Pradesh and Uttarakhand. His Bharatiya Janata Party also has a leading coalition status in Goa and Manipur states.
29. “India and Pakistan will not go to war over Kashmir.”
30. “The Taliban will build on gains made during 2016, which will result in more areas falling out of the Afghan government’s control and will make prospects for negotiation with the Taliban bleak. Islamic State advance in Afghanistan will continue. Pakistan will feel a spillover effect and could see an increase in domestic insurgency in 2017.”
The Taliban insurgency continues to gain ground against the chronically weak Afghan state. Political infighting in Kabul has only helped their cause, and the Americans are nowhere to be found, preoccupied as they are by the fight against the Islamic State in Syria. The Taliban are therefore in no mood to negotiate. These conditions have allowed the Islamic State to create an area of operation in the northern and eastern parts of the country. The Islamic State has also ventured into Pakistan, where jihadist attacks have resumed after a brief period of decline.
31. “Turkey’s efforts to shape the conflicts in Syria and Iraq will force Iran to confront Turkish forces and their local allies via its own proxies. We can expect Turkish-Iranian competition in the region to become more pronounced.”
Iran has not had to worry about Turkey taking the gains it has made in the Middle East; Ankara is busy with its own domestic and economic issues. Turkey does not need to enter the Syrian civil war because the conflict does not yet pose a fundamental threat to its border security. Simply put, the competition has not materialized in earnest.
The stakes are higher for Iran, so Tehran is devoting more resources to things like fighting the Islamic State, supporting its Shiite proxies throughout the region and, when necessary, pushing back against the United States. Our forecast overestimated how much responsibility Turkey was willing to take in the Syrian conflict and, more important, when it would enter the fray. It’s one of our biggest mistakes of the year.
32. “Tehran will work closely with Shiite and Kurdish forces in Iraq to limit Turkey’s involvement in the country’s Sunni areas.”
This score is a composite of the two parts of this forecast: Iran’s work with the Shiites and its relations with the Kurds. The score is an “A” for Tehran working with the Shiites. It is a “D” on working with the Kurds. The Kurdistan Regional Government in northern Iraq has declared its intention to hold an independence referendum, which Iran does not want. The Islamic State attacks in Iran in June – the first of their kind – were aided by Iranian Kurds, according to reports. Some Iranian Kurds fighting the Islamic State, meanwhile, have received U.S. training and are also becoming battle hardened. There is an uneasy cooperation between the KRG/the Syrian Democratic Forces and Iran in combatting IS. But there are several Kurdish groups, and Iran is facing problems dealing with its own.
33. “Riyadh will be forced to scale back on what was an assertive regional policy agenda, especially with regards to the war on its southern flank in Yemen.”
Saudi Arabia said in March 2016 it would scale down combat operations in Yemen, but bombings continue anyway. Crown Prince Mohammed bin Salman, now the heir to the throne, has said the government intends to press on and that it can’t come to terms with Iran on this issue. Saudi Arabia may be forced to pull back by the end of the year – it certainly wants to – but we have yet to see any evidence in that regard.
34. “IS will be under increased pressure in 2017, but will remain ensconced in its stronghold of Raqqa until a coalition of forces powerful enough to dislodge it appears, which will not happen by the end of 2017.”
We did not think the Islamic State would pull back significant numbers of fighters from Raqqa before the end of the year. But when the Syrian Democratic Forces and the Syrian army began their assault on the city, that’s exactly what they did.
The final evaluation of this forecast will hinge on how long it takes the SDF to take Raqqa. If it takes as long as it took to reclaim Mosul, this forecast will have earned an “A.” If Raqqa falls in a matter of months, we’ll assign ourselves a “D.” The longer the fighting goes on, the more accurate our forecast will be.
35. “Brazil’s economy will finally end two years of deep recession and return to modest GDP growth.”
Brazil’s official data agency reported that gross domestic product grew by 1 percent in the first quarter of 2017. Also in the first quarter, agricultural production was up by over 13 percent, industrial output was up by 0.9 percent, and services remained unchanged. The growth may seem modest, but it was the first time in eight consecutive quarters that the economy did not contract.
Current indicators suggest the economy could continue to grow through the rest of the year. In April, the International Monetary Fund adjusted its growth projections for Brazil from 0 percent to 0.2 percent. Figures from the Brazilian data agency show that industrial production rose 0.6 percent in April compared to the previous month. Inflation, for the first time since the recession of 2015-2016, is below the government target of 4.5 percent. The central bank is also lowering interest rates, which now stand at 10.25 percent, down from 13.75 percent at the beginning of 2017.
36. “In Argentina, the economy will show signs of normalization such as inflation rates multiple points lower than years past, freer trade flows due to less domestic regulation and less government subsidies.”
In 2016, inflation totaled 40.3 percent, with a monthly average of about 3 percent. In the first four months of 2017, inflation totaled 8 percent, with a monthly average of 2 percent. The inflation measurement for the previous 12 months (April 2016-April 2017) was down to 27.3 percent. The government opened up trade in 2016 and has continued to this year by lifting restrictions on imports of computers, computer accessories and telecommunications. This caused electronics imports to rise 12 percent. The government also loosened restrictions on the import of used oil extraction equipment for projects in the Vaca Muerta formation. Buenos Aires has cut some subsidies but has been careful not to upset the public too much, considering midterm elections will be held in October. Given the timing, the government won’t make major cuts until 2018, though it may make smaller adjustments in the meantime.
37. “The political gridlock that lasted throughout 2016 in Venezuela will end in 2017. There will be a transformation of the government and the administration of President Nicolas Maduro in its current form will not survive 2017.”
Maduro is still the president of Venezuela. The opposition has held protests throughout the country, but they have yet to bring about major changes in the government. Both parties continue to pursue legal measures to undermine the power of the other. There has also emerged a covert coalition of military, police and civilian officials who are trying to balance against the “transitory, criminal government.” Further development of this clandestine group, as well as growing military dissent, are the types of indicators that suggest a breaking point may still occur this year.
38. “Washington and Paris will very selectively engage in security operations in the area [the Horn of Africa and the Sahel] through advising, training, carrying out special forces operations and sharing information. Washington will increase this level of activity in 2017. Paris will be more constrained, as its security forces are overstretched and being used more heavily domestically.”
This forecast appears to be on track. There are nearly 1,000 U.S. troops deployed in Niger and Cameroon for counterterrorism operations. U.S. engineering officers have also conducted training exercises with Niger, Chad, Nigeria and Cameroon on counter-improvised explosive device missions. And U.S. Marines have conducted security operations with Senegalese troops in Mali. In March, Washington designated parts of Somalia an “active area of hostilities” for 180 days, a status that makes it easier for the U.S. military to conduct airstrikes against al-Qaida and al-Shabab.
French troops continue to have a presence in Mali, Mauritania, Burkina Faso, Niger and Chad. The military continues to operate at near full capacity, with 13,000 troops being used domestically. France extended its military operations from the center of Mali to the border with Burkina Faso but has not deployed additional troops to cover the area. The French government has been very supportive of the G5 security force that has finally started to take shape this year. The first joint border patrols are now being carried out, and French troops are advising and assisting these units.
39. “In particular, low-income countries in East Africa – Ethiopia, Kenya, Tanzania and Uganda – will see their economies grow multiple points above the global and regional average growth rates in 2017.”
Regional growth for sub-Saharan Africa is expected to be about 2.6 percent, according to the International Monetary Fund and the World Bank. The IMF expects the Ethiopian economy to grow by 7.5 percent; the Kenyan economy by 5.3 percent; the Tanzanian economy by 6.8 percent; and the Ugandan economy by 5 percent. (The World Bank puts Ethiopian growth at 8.3 percent and Tanzanian growth at 7.2 percent.) The Ethiopian government has quashed social unrest so that it no longer poses a threat to the economy. Al-Shabab has increased its attacks on Kenya, but the attacks have largely occurred far from economic hubs and therefore do not threaten economic activity.