Europe: Recovery or recession?
Also: China, Cuba, NATO, Ukraine, the US, Ethiopia and climate change.
EUROPE. GDP. Recovery or recession?
The Eurozone records its largest contraction since Covid.
The eurozone is in a technical recession, the EU confirmed on Thursday, having shrunk 0.1% in both the first quarter of 2023 and the fourth quarter of 2022. But average GDP across the EU as a whole inched up, as did jobs numbers.
INTELLIGENCE. The recession won’t likely outlast summer. The EU forecasts growth of 1.1% over 2024, and jobs are safe. Unemployment only rose in Greece, Lithuania and Slovakia. Yet the figures will worry Berlin and the Hague, whose economies contributed most to the decline. Germany’s coalition is in turmoil over its energy policies. The Netherlands’ prime minister barely survived a vote of no confidence on Thursday over gas extraction.
FOR BUSINESS. The war in Ukraine continues to hamper Europe’s post-Covid recovery, but it’s a mixed bag. Food prices remain volatile – especially now that the Black Sea grain deal is in peril – but energy prices are falling, despite their prominent role in daily political debate. The recovery is further hampered by the European Central Bank’s declared aim of keeping rates high. The ECB is expected to add 25 basis points in June and July.
EUROPE. MIGRATION. Any port in a storm.
Europe changes its asylum system. It looks a bit like Britain’s.
EU ministers agreed yesterday to reform the bloc’s asylum claims system. Failed applicants can now be sent to third countries, and member states can pay into a common fund instead of accepting successful applicants.
INTELLIGENCE. Turmoil in Africa has boosted arrivals and a rightward swing across Europe has sharpened focus. After seven years of debate, there is now an agreement. Germany wanted referrals only to countries with a genuine connection. Italy just wanted referrals. The compromise is that referrers can now determine whether a third country is “safe”. Britain, which has sought similar policies with Rwanda (amid strong criticism from the EU), looks vindicated.
FOR BUSINESS. The agreement will not fix the EU’s migration system overnight. Nor will it necessary staunch migrant flows, particularly from Africa. On Sunday, the leaders of Italy, the Netherlands and the European Commission will visit Tunisia. President Kais Saied has been in talks with the International Monetary Fund for a $1.9 billion loan for months. He may finally get it if he commits to processing asylum claims before they cross the Mediterranean.
CHINA. CUBA. A rum deal.
Havana reportedly seeks a new crisis.
China and Cuba agreed to establish a spy facility on the island nation, the Wall Street Journal reported on Thursday. The multi-billion dollar base would permit Beijing to listen in on south-eastern US military bases and communications.
IINTELLIGENCE. The White House said the report was “not accurate” while Havana said it was “fabricated by US officials”. Beijing is mute, and nothing has yet been built, but it’s not outside the realms of possibility. Cash-strapped Cuba offers the same geographic advantages as it did for the Soviets in the 1960s. It would also make Washington think the same way about its strategic hinterland as Beijing does about Taiwan and other nearby islands.
FOR BUSINESS. Even if false, the mere idea is provocative in the lead-up to next year’s US election, particularly as the two main Republican candidates both come from Florida, a mere 90 nautical miles from Cuba. It would also upset recent efforts on both sides on re-engaging on trade. Still, China has reasons to play hardball. The Financial Times reported on Thursday that the US, Taiwan and Japan will from 2025 share naval reconnaissance data.
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NATO. UKRAINE. The A-Team.
Kyiv deploys its Western weapons.
Footage on Thursday suggested Ukraine’s counteroffensive involved heavy Western armour and NATO-trained soldiers. The alliance announced it will conduct its biggest-ever air-force wargames next week, right on Ukraine’s border.
INTELLIGENCE. US Bradley fighting vehicles and German Leopard 2 tanks have appeared among Ukrainian forces in Zaporizhzhia. Troops that the US and other allies have trained also appeared. Ukrainian attacks earlier in the week were comprised of less elite forces and used older, often Soviet-era equipment. Now deploying its most expensive assets, Ukraine has emphatically committed to its long-awaited spring – now summer – counteroffensive.
FOR BUSINESS. NATO is more incentivised than ever to seek a return on its investment in Ukraine. But Kyiv’s window is closing, as US elections approach and European politicians more sympathetic to Putin climb the polls. Early wins by Ukraine may encourage more investment from the West, including F-16s. Still, a quick victory isn’t assured. Russia’s military has largely learned the lessons of earlier failures and Putin will be prepared to take higher risks.
UNITED STATES. ETHIOPIA. Fed-up.
The US stops food aid amid a humanitarian crisis.
Washington suspended food aid to Addis Ababa on Thursday, citing a widespread scheme to steal donated food. It is alleged federal and regional government officials were complicit, notwithstanding growing hunger in the Horn of Africa.
INTELLIGENCE. USAID will not resume food exports to Africa’s second-most populous country, and one of the world’s poorest, until reforms are implemented. The World Food Program withdraw on similar grounds last month. The aid was allegedly diverted to the military and sold on the open market for re-export. The moves are risky. Ethiopia struggles to feed 20 million of its citizens, due to drought, inflation and civil war in Tigray, which ended in November.
FOR BUSINESS. The impending food shortage may reignite tensions in Tigray and compound the crises on Ethiopia’s borders. Sudan, to the north-west, is in the midst of a civil war, which has displaced over 1.3 million. Somalia, to the east, is close to famine. Non-Western actors, like Russia, may step in. The Kremlin is incentivised by political optics, less particular about corruption, and unperturbed by human rights abuses. Arid ground will be fertile for some.
UNITED STATES. CLIMATE CHANGE. Where there’s smoke.
Wildfire haze strikes at the heart of capitalism.
New York recorded its worst-ever air quality on Thursday as President Biden sent hundreds of personnel to help douse 450 fires burning across Ottawa and Quebec. Wildfire smoke will blanket much of the eastern US until Tuesday.
INTELLIGENCE.In the eastern US, where cities recorded worse pollution than New Delhi, flights have been grounded. North of the border, Canada is on track for its worst-ever fire season. The situation has re-energised debates on the climate after inflation took away attention. The smoke will clear New York by next week (though not for former resident Donald Trump, who has been indicted on charges relating to his handling of classified documents).
FOR BUSINESS. The imagery of an orange Manhattan will be used by activists at this year’s UN climate summit, to be held in Dubai. On Thursday, the United Arab Emirates’ incoming president of COP28, admitted the scaling down of fossil fuels was inevitable. While cross-border wildfire haze is an annual event for much of the globe, its presence in the world’s financial centre, and home of the UN, gives an altogether too common issue a newfound salience.
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