Dr. Rebecca Harding, CEO

Two news stories last week illustrated just how fragile the world of trade is at the moment which will show themselves in the economic data this coming week. No, these were not Brexit or US-China trade stories; defeat of Theresa May’s Brexit strategy on the 14th February did not especially bother markets, nor did the extension of US-China trade talks in Beijing create a particular boost. The uncertainty around both are largely priced in at the moment and, since nobody is really expecting a quick resolution to Brexit or a permanent ceasefire in the trade talks, everything felt a bit like business as usual.

These stories barely registered but more than emphasise how the trade landscape is being reconfigured geopolitically. First, Germany reiterated its support for the Russian Nord-Stream-2 pipeline in conversations  with Dan Brouillette, the US energy minister. Germany was committing itself to securing its (and Europe’s) energy via Russia rather than via the route preferred by the US,: imports of American LNG. The decision could be a red flag to the US bull: quite apart from what it represents in terms of Russia’s sustained desire to break down Western alliances, it also potentially provokes the US into including Europe’s energy supply in future negotiations about tariffs. These talks are currently on hold, but the US has included LNG as one of its weapons in the US-China trade war. It is unlikely to hold back with Europe given Russia’s role.

The second story was a discussion of European investment in the deep water container port in Georgia. Georgia is building the port to strengthen its global trade role. The fact that the emerging port happens to be ideally located along the route of China’s Belt and Road Initiative (BRI) reveals where Georgia’s strategic thinking is heading, but it is also, arguably, an economic mechanism for combating its challenges with Russia economically rather than militarily. If BRI goes ahead on the scale it is planned, then rade will increasingly shifted eastwards between Russia and China through Eurasia and this is a bid to be part of that momentum. It will do nothing to alleviate tensions and uncertainties as China bids for increased strategic power through trade and technology, and Russia continues to extend its influence through a more covert hybrid approach to conflict.

These stories contribute to the broader picture of uncertainty in global economics and global politics. In the coming week we will see a swathe of European data that will illustrate how political uncertainty is beginning to affect economies. UK House Prices are likely to have fallen, but perhaps more worryingly, we can expect the Purchasing Managers Indices across Europe to be weaker and the crucial IFO index of German business confidence to show increasing signs of nervousness. For the time being, Europe is looking slower rather than directly in recession. But the Nord-Stream-2 story illustrates how it is stuck between Russian and US strategy, and Georgia’s prospective port gives a picture of how trade is shifting. Markets are increasingly beginning to resemble a swan: calm on the surface but paddling furiously underneath. Let’s hope that swan is not black.

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