In search of the third German economic miracle. Germany will publish a new industrial strategy tomorrow named “Industrial Strategy 2030” – mirroring China’s “Made in 2025” and Saudi Arabia’s “Vision 2040.” According to Die Welt, which received an advance copy of the report, the German government aims to boost manufacturing from 23.4 percent to 25 percent of the economy by 2030 in part by providing support for key German companies like Siemens, BMW and Deutsche Bank. The plan also identifies nine strategic sectors ranging from environmentally friendly technology to defense and aerospace equipment that will be the focus of the national strategy. Unlike China and Saudi Arabia, Germany has a track record of conceptualizing and implementing such ambitious plans, but even mighty Germany will face many obstacles before it can achieve these goals. Some of the elements, especially those aimed at boosting German industry, may also set the stage for future disagreements between Berlin and Brussels.
The Philippines can’t make up its mind. Late last week, a spokesperson for Philippine President Rodrigo Duterte raised eyebrows when he said Manila should “be thankful” for China’s construction of a maritime rescue center on Fiery Cross Reef in the contested Spratly Islands. Not everyone in the Philippines, however, is feeling grateful. One opposition politician called the Duterte spokesperson a “Chinese puppet.” The Philippine foreign affairs secretary said on Saturday he would protest the construction of the center at the United Nations, and the defense secretary told a forum at the National Defense College that he recently had a change of heart and now agreed the Philippines should object to the center’s construction. Of course, this is all a lot of hot air. The deeper problem is that the Philippines has no actual recourse beyond voicing its objection at the U.N. – even if it tried to prevent China from building the station, the U.S. wouldn’t help. This is all music to China’s ears – it’s manipulating the facts on the ground while sowing distrust between Washington and a U.S. treaty ally in its backyard.
Maduro remains defiant. European nations, including France, Germany and the United Kingdom, recognized opposition leader Juan Guaido as Venezuela’s interim president on Monday. Meanwhile, the Lima Group is meeting in Canada to discuss how to maintain pressure on the Maduro government, and the U.S. has agreed to send humanitarian aid destined for Venezuela to Colombia, Brazil and a Caribbean island. But Nicolas Maduro continues to call on the Venezuelan military to stand united and remain loyal to his government. Aside from a lone air force general who announced his support for Guaido on Twitter over the weekend, there’s not much to suggest that the military is ready to change sides yet – there were no discernible signs of military participation in opposition protests in Caracas over the weekend. The external pressure is building on Maduro, but it remains to be seen whether it is enough to force him to back down.
More bad news on the global economy. We don’t usually make too much of regularly reported statistics that inspire predicable headlines at the beginning of each month, but February started off with a particularly disheartening spate of reporting related to our 2019 forecast on the global economy. Japanese, South Korean and Taiwanese manufacturing growth dropped to two-year lows. South Korean exports, often seen as an indicator of global trade patterns, contracted year on year for a second consecutive month. A Nikkei survey of major global companies found heavy downward pressure on corporate earnings in the fourth quarter of 2018, including a 30 percent drop in sales in China and a 9 percent decline in net profits for Chinese companies, the first quarterly fall in two years. Perhaps most ominous are increasingly negative expectations for U.S. corporate earnings in the first quarter of 2019.
Iran tests missiles. Iran is testing new missiles and wants you to know about it. Iran’s defense minister announced a successful test of a 750-mile (1,200-kilometer) range cruise missile over the weekend. Meanwhile, Fars news agency reported that Iran was putting precision-guided warheads on a 1,200-mile range ballistic missile (the same kind of missile Iran tested shortly after U.S. President Donald Trump’s election). The Iranian Revolutionary Guard Corps’ deputy chief told AFP over the weekend that no one should tell Iran to disarm and that restrictions on Iran’s missile program would only cause Tehran to continue developing its military capabilities. Internally, Iran is in a difficult position – its economy is in shambles due in part to the U.S. withdrawal from the nuclear deal – so it behooves the government to look tough at home, especially after France threatened to impose new sanctions last week. Iran also has plenty of interest in building up its domestic military-industrial plant. But the government doesn’t want to lose what access to the global economy it has managed to preserve, so these provocations can only go so far. Hence the tests and, more important for Tehran, the public fanfare.
The great game afoot once more? Russia’s foreign minister is on a three-country tour of Central Asia. He visited Kyrgyzstan yesterday and denied that Russia was planning to build another military base there (which of course raises the question of why it had to be denied in the first place). Tajikistan and Turkmenistan are next on the agenda. Interestingly, the Kyrgyz foreign minister said his country was preparing for a visit from Chinese President Xi Jinping during the first half of the year. Meanwhile, Russia has reportedly invited the Taliban for talks in Moscow on Tuesday. Of all the regions we predicted increased competition in 2019, Central Asia is in many ways the most important and the most volatile.
- Thousands protested in Russia against construction of new landfill sites and a hike in domestic waste disposal fees related to new regional regulations on waste collection.
- Inflation in Turkey rose 1.06 percent in January, bringing the annual rate to 20.35 percent.
- Turkey said it would provide $5 billion to aid Iraq’s reconstruction.
- Algeria’s army chief ordered the arrest of 13 senior officers, reportedly for not supporting an ex-general running for president.
- Representatives of Hamas and the Palestinian Islamic Jihad militant group are on their way to Cairo for a new round of talks.
- There were two separate shooting incidents involving paramilitary groups in Northern Ireland over the weekend. There were no fatalities, but Irish police seized a cache of firearms and an explosive device near the border of Northern Ireland and the Republic of Ireland.
- The Bank of Italy’s governor warned that its forecasts for gross domestic product growth in 2019 faced significant downside risks.
- The South China Morning Post reported that U.S. President Donald Trump and Chinese President Xi Jinping may meet in Vietnam Feb. 27-28.
- The U.S. special representative for North Korea arrived in South Korea yesterday to discuss a potential second summit between Trump and North Korean leader Kim Jong Un.