German-Russian relations. In an interview with German news outlet Pfalzischer Merkur, the German commissioner for Russian relations said he expects setbacks in relations with Moscow in 2019. He described Russian policy as “unpredictable,” noting as examples the poisoning of former Russian spy Sergei Skripal, the end of the Intermediate-Range Nuclear Forces Treaty and the ongoing conflict in eastern Ukraine. He added that Russia is facing growing social and economic pressures. Just this week, in fact, Russia’s chief auditor, Alexei Kudrin, reported that Russians’ real incomes grew by only 0-0.4 percent in 2018. This could create problems for the Russian government – which could, in turn, complicate relations with Germany.

Bad signs for U.S. economic growth. The Institute for Supply Management and IHS Markit released indexes for December 2018 – gauges of U.S. manufacturing activity – and the results are much lower than expected. Last month, the ISM index was 54.1, down 5.2 points from November and short of the Bloomberg estimate of 57. Anything above 50 points on this scale indicates economic growth, but the drop suggests that growth is slowing. The new orders component of the index performed even worse, dropping 11 points from November to 51.1 in December, the lowest level in five years. Production decreased by 6.3 points month on month to 54.3, marking the steepest decline in six years. Employment, supplier deliveries and inventories all declined as well. IHS Markit, meanwhile, said the manufacturing Purchasing Managers’ Index slipped to 53.8 in December, down from 55.3 the previous month. The decline in new orders is particularly noteworthy – yet another sign that the U.S. is approaching the end of an extended period of economic growth.

Brazil readies for reforms. The administration of Brazil’s new president, Jair Bolsonaro, is pushing ahead with its promise to reduce the size of the government and open up the economy. The country’s new privatization secretary said he’s developing a privatization plan, and the special secretary for land reform said he’s open to leasing land to foreign investors, within limits. The new central bank president said he expects a presidential decree to be passed within 100 days that will give the bank authority over foreign capital in Brazilian banks. The Infrastructure Ministry announced plans to increase concessions available to the private sector. And Petrobras’ new CEO has said the sale of assets remains a priority for the company. The government is laying the groundwork for major reforms whose success or failure will help determine Brazil’s economic recovery and long-term potential.

Honorable Mentions

  • Italy’s Democratic Party plans to hold protests Jan. 12 against the recently passed budget. The party’s 37 senators already filed a complaint with the Constitutional Court, alleging that the government was overstepping its budgetary powers. Meanwhile, several mayors, including those of Florence and Naples, are clashing with the government over a recent anti-immigration law, which they argue is unconstitutional.
  • Anecdotal evidence from Chinese companies indicates that China’s central bank has started increasing controls to reduce capital outflow.
  • The Kurdistan Democratic Party has reached a deal with the Iraqi government on the withdrawal of Iraqi forces and government-backed militants from Kirkuk, as well as the KDP’s return to the city.
  • According to a top Iranian commander, Iran’s navy will deploy warships to the Atlantic in March.
  • Ecuador’s president asked the country’s top prosecutor to investigate $4.9 billion worth of oil-related contracts signed during former President Rafael Correa’s administration on suspicion of misuse of funds.