Britain: No tea, no sympathy
Also: the US, Russia, Germany, Poland, and the DRC.
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BRITAIN. No tea, no sympathy
Several storms hit Downing Street at once.
Labour overturned Tory majorities in two by-elections Thursday. Inflation steadied at 4% in January, but GDP fell 0.3% in the December quarter, confirming a recession. Retailers warned of a tea shortage due to Red Sea disruptions.
INTELLIGENCE. Rishi Sunak’s election chances look even bleaker as Conservative backbenchers eye challenges from the left and right. Labour looks invincible, but the insurgent Reform UK party is rising in the polls and a new lobby led by ex-prime minister Liz Truss threatens to further divide Sunak’s government, already riven over migration reforms and economic policy. The polls are mixed for the Scottish National Party, which is also vulnerable to Labour’s rise.
FOR BUSINESS. UK elections could still, in theory, be a year away, and Labour has a habit of self-sabotage, but betting odds put Labour at 2/17 (with 2/9 odds of a majority). Under Kier Starmer, such a government is unlikely to be radically different from Sunak’s on economic matters. Brexit is done. Ambitious green policies have been buried. Yet a strong showing should give him a mandate less prone to backbench revolt. That, at least, should be good for growth.
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UNITED STATES. RUSSIA. Hypersonics and hyperbole
A briefing on space weapons fails to land.
The White House confirmed reports Thursday Russia was building anti-satellite weapons in violation of international law. Speaker Mike Johnson said Congress had been aware of the threat for weeks and a response should be immediate.
INTELLIGENCE. The trickling of leaks over several days has generated hype, but if the White House hoped an “immediate response” might be the passing of aid for Ukraine, it has been left disappointed. The House of Representatives has recessed until 28 February and the chance of further assistance is waning by the day. Vladimir Putin has meanwhile said Russia would prefer to see Joe Biden – "a politician of the old formation" – win the election.
FOR BUSINESS. Moscow has made no secret of its hypersonic program (it used a nuclear-capable Zircon missile for the first time last week in Ukraine), or its ability to destroy satellites (Beijing has also shown this capability). Yet as Russia becomes a “cry wolf” phenomenon to many voters, policymakers risk losing the national security debate. This not only increases the unpredictability of any potential conflict, but the regulatory environment for many industries.
GERMANY. Consolation prizes
Good news, of a sort, for Berlin.
Germany became the world's third-biggest economy after Japan slipped into recession Thursday. Berlin said defence spending would hit 2.01% of GDP in 2024. Microsoft said it would invest €3.2 billion in Germany over the next two years.
INTELLIGENCE. Olaf Scholz needs a break after months of political missteps and fiscal restrictions. Yet Germany's economy is still "dramatically bad" (in the words of his economy minister), its business lobby expects a second year of recession, and his coalition lost a seat in a partial rerun election on Sunday. Things could get worse. The coalition this week announced new restrictions on the far-right. This is expected to only boost populism’s appeal at the polls.
FOR BUSINESS. Whether third or fourth, growing or slowing, Germany has a skilled workforce and world-class mid-sized firms. But costly energy, unpopular leadership, and electoral polarisation are eroding these advantages. For every new investment, others are offshoring, both inside and beyond the EU. Latest half-yearly foreign direct investment fell to €3.5 billion, from €34.1 billion the year before. Net public investment is below that of its peers.
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POLAND. Warsaw piqued
Washington worries about a constitutional crisis.
Poland's president and prime minister will visit next month, the White House said Thursday. Prime Minister Donald Tusk upended a press briefing with President Andrzej Duda, accusing the previous government (and Duda's party) of spying.
INTELLIGENCE. The White House framed the visit around Poland’s 25th year of NATO membership, but Joe Biden is likely more concerned with the collision course between Tusk and Duda, which threatens to upend Warsaw’s renewed cooperation with its partners. Duda’s nationalist Law and Justice party (PiS) has been accused of contemplating a coup. Tusk has been accused of unconstitutionally seeking to remove PiS appointees from the media and the courts.
FOR BUSINESS. Commitment to NATO is one of the few things Tusk and Duda agree on, but it’s unlikely Biden can end the crisis by banging heads together. While claiming a mandate for reform, Tusk may need to slow his campaign, at least until the results of the European Parliamentary elections in June show how Poles are feeling. Poland has 53 seats in the 720-seat chamber. Defying trends elsewhere, Tusk's Civic Coalition is tipped to win most of these.
DEMOCRATIC REPUBLIC OF CONGO. Darkness falls
Conditions are forming for a third Congo war.
Two South African soldiers were killed in Congo’s east, Pretoria said Thursday. Elsewhere, 12 were killed at a gold mine. Thousands protested in Kinshasa Monday over Western support for Rwanda, which backs Congolese rebel groups.
INTELLIGENCE. The Tutsi-led M23 militia has escalated fighting near the city of Goma, on the Rwanda border. UN peacekeepers, which have also been attacked, are departing, but South Africa has deployed an extra 2,900 troops via a separate Southern African Development Community mission. Pretoria has strained ties with Kigali. In 2021, Rwanda was accused of hacking President Cyril Ramaphosa’s phone. In 2022 he skipped a Commonwealth summit there.
FOR BUSINESS.The multiple interventions in the DRC have the echo of the Congo wars of the 1990s and 2000s, where Rwanda was also a belligerent. This time around, any escalation will be tempered by SADC’s other mission in Mozambique, where Rwanda is a partner, but pressure is building on Ramaphosa from nationalist African National Congress voters now courted by the far-left Economic Freedom Fighters. South Africa holds elections before August.