UK: What next?
At a European Council meeting yesterday, with the UK present for the last time, EU leaders asked for the UK’s EU exit process to be “orderly”. This should allow a more rapid change of leadership in the UK, with the new Prime Minister likely to be elected at the Conservative Party convention at the start of September. Incumbent PM David Cameron reiterated his plan to leave it for his successor to trigger Article 50 of the EU Treaty, which allows for the start of negotiations about an exit. The second day of the European Council, taking place with only 27 Heads of State, should help forge a common negotiation stance. Despite financial market pressure easing somewhat, with FTSE losses since the Brexit vote -3% (28 June), some sectors, including financials, automotive, construction and retail, are recording strong losses. Volatility is expected to remain high, given the prolonged period of uncertainty. Recession risk in H2 in the UK is high. Indeed, GBP depreciation will impact purchasing power, while investment is expected to take a hit. Import prices in the UK are expected to increase and volumes to adjust lower, moderately impacting Eurozone countries in 2017, with a fall of -0.1pps of GDP growth.
Spain: Political deadlock may not be resolved
After the failure to produce a government following elections in December 2015, new general polls were held last Sunday. The People’s Party (PP) was confirmed as the political organisation with most parliamentary seats (137 out of a total 350), obtaining an additional +14 seats compared with December. Although it remains the second largest political force with 85 seats, the socialist party (PSOE) disappointed, losing -5 seats from December’s elections. The centre-right Ciudadanos, which surprised in the previous elections with 40 seats, also lost support and obtained only 32 seats. Moreover, the hard-left did not gain strength as the Podemos Unidos coalition obtained 71 Congressional seats, the same number as in December. Despite these results and changed distribution of seats, the political deadlock may not be entirely resolved as no single party obtained an absolute majority in Congress. We estimate that political uncertainty will reduce real GDP growth by -0.3pps in 2016 and the economy will expand by +2.6% overall, after +3.2% in 2015.
Ghana: Too early to suggest return of a success story?
Provisional data show GDP growth in Q1 was +4.9% y/y (+4.1% in Q4 2015), driven by services (+8.8%, boosted by the power, water and communications sub-sectors) and agriculture (+2.8%, crops and cocoa), which offset contraction in industry (-1.1%, gold output declined and oil output from the Jubilee field was below target). The services sector accounts for around 60% of overall GDP and industry over 27%. We forecast overall GDP growth of +5% in 2016, compared with a government target of +5.4%, representing a bounce back from around +4% in 2014 and 2015. Ghana currently has an IMF three-year Extended Fund Facility through to April 2018 that supports an economic reform agenda but there are some concerns that policy drift could become evident ahead of the November elections. Indeed, President John Mahama announced plans to lower electricity prices following public demonstrations relating to sharply higher tariffs. If stability is maintained around election time, EH expects GDP growth will increase to +7.5% in 2017, with associated commercial opportunities.
Jordan: Supporting act
The IMF and local authorities reached a staff-level agreement for a three-year Extended Fund Facility. If, as seems likely, this receives approval from the Fund’s board in July it will also unlock the way for wider donor loans and grants aimed at supporting the economy at a time when it is challenged by large-scale refugee inflows. The IMF facility will also support Vision 2025, Jordan’s 10-year economic planning framework, one pillar of which is to reduce public debt from around 94% of GDP currently to approximately 77% by 2021. The Fund recently noted that Jordan’s currency peg “has served the economy well” and we do not envisage a change in the exchange rate system in the short term. This week’s car bombing on the northern border with Syria was a reminder of the country’s regional risk perspective and some trade disruptions have been reported, although the business environment remains relatively supportive. We forecast GDP growth of around +2.5% in 2016 and +3% in 2017.