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Discord and Stagnation

Although the worse of the Winter seems to be fading, here in Stockholm, geopolitical and economic clouds cast a long shadow over events this week. From what unfolded at the Munich Security Conference, to Algeria, Brexit, PMIs, GDP, Moldova and Nigeria, the news were not very encouraging.

The week got off to another bad start in the UK as seven MPs resigned from Jeremy Corbyn’s Labour Party in objection to his leadership on Brexit and a culture of anti-Semitism in the party. They were joined in following days by another member of Labour and three members of Prime Minister Theresa May’s Conservative Party objecting to Mrs May’s handling of the Brexit negotiations and the party’s turn to the far right. While an independent centrist party would struggle in the UK’s first-past-the-post electoral system, Mrs May’s working majority is now down to eight, and more defections from both parties are expected.

The theme of the 55th annual Munich Security Conference, which took place last week was “Who will pick up the pieces” of an increasingly strained liberal international order. Unfortunately, the gathering itself didn’t provide an answer. Instead, the meeting highlighted the differences between U.S. Vice President Mike Pence, Iran’s Foreign Minister Javad Zarif, Germany’s Chancellor Angela Merkel on issues like the Iran nuclear deal, the INF treaty and climate change.

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Ekonamik also took the opportunity to consider the recent announcement that Algerian President Abdelaziz Bouteflika will run for a fifth mandate at the age of 81. The fragile balance of power struck between the army, the security services and economic interests will inevitably be put to the test once the president passes away. The absence of a clear successor may wreak havoc in the country and should concern its neighbours.

Economically, IHS-Markit flash estimates of their Composite PMI measure suggested the Eurozone is lagging behind the USA . While the figures for the USA are consistent with economic growth of around 2.5%, those for the Eurozone suggest that GDP may struggle to rise by more than 0.1% in the first quarter.

This gloomy outlook for the EU economy was given further weight by the release of GDP data showing the German economy stagnating in the last quarter of 2018. However, a more in-depth analysis of the facts suggests it is possible that most of the decrease in inventories underlying the stagnation might be due to adjustments in new standards for the car industry. If so, growth should return in the next quarter.

Ekonamik continued to keep a close eye on Nigeria’s general election, which was held on Saturday, February 23, after a week’s delay. The race between Atiku Abubakar and president Muhammadu Buhari was expected to be close and was unfortunately marked by violence. The votes were still being counted at the time of publishing.

Ekonamik also previewed Moldova‘s parliamentary elections, which was held on Sunday under a new electoral system and a cloud of mutual distrust between the pro-European and pro-Russian parties. The election is important for Moldova’s economy, which depends on good relations with the EU to sustain its borrowing habits amid slowing growth. This has not deterred the country’s president Igor Dodon from continuing antics certain to meet approval in Moscow. Preliminary results suggest the Socialist Party received 31.4% of the votes, followed by the opposition “ACUM” platform with 26.2% and the Democratic Party with 24%.

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