Grim news for the global economy. Germany’s gross domestic product shrank by 0.2 percent in the third quarter, a contraction that corresponds with falling industrial growth and new orders. Coincidentally, the German central bank released its Financial Stability Review, which said the bank would be particularly vulnerable to a surprise recession and an attendant collapse in asset prices. Japan’s economy also contracted by 1.2 percent in the third quarter and by 0.3 percent on the year. Growth rates in China, Taiwan and South Korea have also slumped, and though industrial output in China has picked up, retail sales dropped to a 10-month low. Meanwhile, what began as a gradual, monthlong decline in oil prices has become a rout, with the price of Brent crude falling by nearly 10 percent after having already dropped by 10 percent in the past 30 days. The price now stands between $66 and $67 a barrel.
But the sky isn’t falling just yet. Some of the negative indicators for the German economy may be linked to new emissions test procedures for German cars. Both UniCredit and J.P. Morgan, however, expect the economy to rebound in the fourth quarter. In Japan, the admittedly disappointing figures, themselves a result of lackluster consumer and business spending, were made worse by a series of natural disasters. For an economy that has been humming along just fine since the Lost Decades – which arguably never really ended – this isn’t too foreboding. As for oil prices, the market is oversupplied, and most observers now understand that their concerns over U.S. sanctions on Iran and the crisis in Venezuela were misplaced. Even so, their concerns over the general state of the global economy are not. The third and fourth largest economies in the world just sputtered, and the effects of massive changes in U.S. trade policy are only just now being felt.
Cease-fire in Gaza. Israel and Hamas agreed to a cease-fire in the Gaza Strip on Tuesday. The deal, brokered by Egypt, has pulled the two sides back from the brink of another mini-war. Today, Israel’s defense minister resigned in protest, lambasting Prime Minister Benjamin Netanyahu for trying to secure a truce with Hamas by letting Qatar offer it millions of dollars in aid last week and by failing to take more stringent actions against the Palestinian political party and paramilitary group to restore Israeli deterrence. The decision-making process here is fairly simple: Israel’s largest enemy is not Hamas, or any group in the Gaza Strip for that matter. Israel is more concerned about Hezbollah – which, unlike Hamas, has acquired precision-guided munitions from Iran by way of Syria – and about Tehran’s designs in Syria overall. Going into Gaza now would open up the possibility of a two-front conflict, a less appealing prospect than pulling back. While the strategic logic behind it makes sense, the move will put a great deal of stress on the Israeli government. But in the grand scheme of things, Israel’s restraint will cost Hezbollah and Iran the most.
The Brexit that never ends. The British government said it finally has a technical agreement on the U.K.’s withdrawal from the EU. Today, it will attempt to sell the deal to Cabinet ministers; if approved, the agreement moves on to the House of Commons. The Irish Republic’s Cabinet is also huddled in an extraordinary meeting of its own, and the European Commission is watching to see if the British government has enough political capital to bring the deal home. The agreement is not an endpoint but another chapter in this long-running soap opera, which is far from over. The limited details available suggest the British government has conceded a lot in the deal, a full draft of which is expected to be made available today for public consumption. If the government survives the day – a rather big if – the main question is what impact the agreement and subsequent debates might have on the future of the union. If the government doesn’t survive, the possibility of a second Brexit referendum increases dramatically.
China scouts out the Pacific. Chinese President Xi Jinping is off on a regional tour, visiting Papua New Guinea, Brunei and the Philippines. Though an Asia-Pacific Economic Cooperation meeting is the official reason for Xi’s visit to Papua New Guinea, his real aim there is to strengthen relations with one of the South Pacific nations most receptive to China’s advances. (To be fair, Papua New Guinea is playing all sides here, having recently agreed to boost military cooperation with Australia.) Xi penned an op-ed in a local paper laying out China’s hope for a strong relationship with the country going forward. The Chinese vice minister of foreign affairs was a little more forthright, commenting yesterday that China’s engagement with the region could not be stopped. As for Brunei and the Philippines, they are also important partners for China, since they’re closer to home and relate to Beijing’s claims and ability to expand its power in the South China Sea. China’s activities in its near abroad have created suspicion and hostility in the region. Xi will attempt to convince concerned countries that Beijing’s intentions are benign, but it’s a tough sell.
- The South China Morning Post reports that Chinese Marxist activists have been detained in as many as five major Chinese cities.
- The Polish defense minister met with the U.S. secretary of defense in Washington today and affirmed the close military relationship between the two allies.
- China’s premier said there were no plans for a “massive stimulus” in response to the pressures facing the Chinese economy.
- Iranian-backed Houthis and the Saudi-backed coalition in Yemen agreed to an informal cease-fire in the port city of Hodeida.
- According to Georgia Today, Georgia’s defense minister and the U.S. Transportation Command head announced that they will build a joint airfield at Vaziani Military Base near Tbilisi.