Brazil Copes with a Sluggish Economy

The slow economic growth that has characterized the past two years for Brazil will continue into 2015. Uneven trade with economically stagnant Argentina will continue to hamper the steady growth of Brazilian manufacturing exports, which will spur Brasilia to seek increased exports to other South American and international markets. Brazil's slow growth will lead to government spending cuts this year equivalent to about 1.2 percent of the country's gross domestic product. Such cuts are unlikely to affect the popularity of the ruling Workers' Party, as the cuts will avoid targeting major social spending programs that have underpinned its popularity.

Ecuador's Correa Prepares to Seek Re-Election

In 2015, the Ecuadorian government will implement the final legislative steps to allow President Rafael Correa to run for a fourth presidential term in 2017. Ecuador's fragmented opposition will most likely resort to legal measures and street protests to prevent the decision. However, Correa's high popularity among voters and the ruling party's overwhelming control of the legislature will limit the opposition's ability to prevent Correa from standing for a third term.

South Asia

India's Modi Works Toward Reform

Indian Prime Minister Narendra Modi will remain fundamentally constrained in his attempts to transform his ambitious reform plans for India into reality. In 2015, Modi will grapple with challenges familiar to any Indian leader: securing a stable environment for foreign investment, reining in rampant corruption and bureaucratic inefficiencies and asserting the central government's authority over independent-minded states. Modi will not reverse India's geopolitical realities, but he will continue the slow process of consolidating national authority and garnering support through populist measures before attempting broader structural reforms. Modi will struggle to maintain the support of India's middle-class voters and the business elite as he fights to rein in a large and diverse parliamentary majority that at times will seem more committed to pursuing a Hindu nationalist ideology than Modi's more pragmatic economic reforms.

Overall, economic growth in India will improve this year, driven primarily by higher investor confidence, lower energy prices and a strengthening dollar that will help exports. But overall gross domestic product growth is unlikely to top 5-6 percent because of structural issues regarding inflation, currency fluctuations and impediments caused by infrastructure deficiencies. The Modi government will continue efforts to divest shares in state-owned enterprises, but labor unions and bureaucrats are likely to stymie these plans. Large-scale strikes would affect coal and iron ore output while adversely effecting the steel, power and manufacturing sectors.

India will increase government spending to upgrade its aging military equipment and improve domestic security. It will renew the push to allocate resources to fight Naxal rebels and reinforce borders threatened by Islamist militancy. Attempts to get local governments to cooperate (especially in key Naxal-afflicted states such as Jharkhand, Chhattisgarh and Odisha) will suffer as Modi continues struggling to secure control over his own party while communal pressures exacerbated by right-wing Hindu nationalist policies will risk social unrest in states like Uttar Pradesh and Bihar.

Modi will struggle to create an investment climate that meets the expectations and promises made to a long list of states that sent officials to visit India in 2014. However, he will gain the most traction in building India's business relations with China, Bangladesh and the ASEAN countries and in ongoing efforts toupgrade ties with the United States. Meanwhile, India's traditionally positive relationships with Japan and Australia will face some tension as Tokyo and Canberra become frustrated with the slower-than-expected pace of reforms that is delaying planned investment projects. The resolution of a longstanding border dispute with Bangladesh will likely happen in 2015, building on steadily improving relations between New Delhi and the ruling Awami League in Dhaka.

Tensions with Pakistan will remain a concern as border violence continues into the new year. New Delhi has an imperative to avoid escalating military tensions with Islamabad, especially as the latter continues its anti-militancy campaign. However, New Delhi's political leadership remains caught between domestic crises and increasing hardline Hindu politicking, making it difficult for the Modi administration to de-escalate the situation without a clear victory. Similarly, Pakistan's military will need to avoid capitulating to India. Ongoing tensions will leave open the possibility of a miscalculation, which could lead to an escalation in fighting.

Date: 2016-04-22; view: 595