Stratfor Predictions: Potential Trends in World Regions During Q3 2023

Stratfor published a report titled “Q3 2023 Forecast” on June 20, 2023. The report highlights key anticipated trends for Q3 2023, covering both global and regional expectations.

Global Predictions

The report provides an overview of the future state of the world, particularly economically, during Q3 2023, as follows:

1. Economic Downturn in the US and Eurozone: US interest rates will peak in Q3 2023, with ongoing high core inflation risks leading to negative economic consequences. The European Central Bank will face similar challenges with persistent core inflation.
2. Increased Financial Risks for Developing Economies: Many mid-income economies like Argentina and Pakistan will face significant risks due to weak credit fundamentals, inefficient economic policies, and growing political instability. Developing economies, especially in sub-Saharan Africa, will be most vulnerable to debt default risks.
3. Balancing AI Race and Regulatory Efforts: Concerns over data privacy and economic challenges of AI will push governments to intensify regulatory efforts, potentially slowing innovation in AI development.
4. China’s Pursuit of AI Models Similar to the West: American tech companies dominate AI systems creation. To address social impacts and data privacy concerns, Chinese companies will aim to catch up with Western counterparts in developing advanced AI models like ChatGPT, adhering to new standards closely.
5. BRICS Summit to Gain Global Momentum: The BRICS summit from August 22-24 could be the most significant in years, with China, Russia, and others aiming to expand membership and adopt a unified reserve currency to reduce long-term dominance of the dollar and Western financial institutions.

Eurasia Region

Key predictions for the Eurasia region in Q3 2023 are as follows:

1. Ongoing Ukrainian Attacks Without Resolving Conflict: Ukraine will continue its summer offensive, regaining some southern territories but not enough to change the strategic course of the war or lead to realistic peace negotiations.
2. Delayed NATO Membership for Ukraine Due to Divisions: Kyiv is unlikely to make significant progress on NATO membership during the July summit due to member divisions, receiving instead promises of security support, including more military equipment.
3. Russia Maintains Internal Stability Despite Wagner Uprising: Despite ongoing military, political, and economic pressures from Wagner’s actions, Russia is expected to maintain internal stability and expand its war efforts, bolstering President Putin’s political position.
4. Armenia and Azerbaijan Seek Peace Agreement Amid Obstacles: Peace talks may gain momentum, but issues like Nagorno-Karabakh’s integration and regional transit routes will remain significant obstacles to a settlement.
5. Georgia Balances Relations with Moscow and the West: With declining EU membership prospects and controversial internal policies, Georgia will continue its “strategic patience” policy, balancing between Russia and the West.
6. Moldova Receives EU Membership Support: Moldova, granted EU candidate status last year, will see more positive signals regarding its membership path, though without clear practical steps, amid growing popularity of President Maia Sandu and her party.

Europe

Key European predictions for Q3 2023 are as follows:

1. Significant Economic Improvement: The summer season will boost economic activity in tourism-reliant southern European countries, while lower energy prices will improve manufacturing conditions across the continent.
2. Continued European Support for Ukraine: Political, economic, and military support for Ukraine will persist, including training Ukrainian pilots on F-16 fighters, despite lengthy training schedules limiting immediate effectiveness.
3. Limited Success of EU Sanctions Against Russia: The EU will impose stricter measures against Russia, aiming to prevent non-EU countries, especially in Central Asia, from circumventing sanctions, but with limited success.
4. Progress in EU Trade Negotiations: The EU is expected to advance free trade talks with Australia and Kenya, approve a strategic minerals supply agreement with Chile, and sign a similar MOU with Argentina.
5. Negative Impact of Drought on Stability and Security: Large parts of Europe will face increased drought and water scarcity, leading to reduced agricultural yields and higher food prices.
6. Spanish Elections Affecting EU Presidency: Spain’s scheduled elections will coincide with its EU presidency, potentially limiting its ability to fulfill responsibilities, delaying key structural reforms.
7. Modest Progress on French Pension Reform Talks: Controversial pension reforms will take effect on September 1, with government discussions on labor issues likely postponed until Q4 due to the summer parliamentary recess.
8. UK Strengthening Western Cooperation: The UK will enhance cooperation with the EU, particularly in energy, science, and climate, and deepen US partnerships to counter China, including imposing new semiconductor export restrictions.

Asia-Pacific Region

Key predictions for the Asia-Pacific region in Q3 2023 include:

1. China Imposing Retaliatory Sanctions Against Western Companies: In response to expanding economic restrictions, Beijing will adopt retaliatory measures, including raids, cyber security reviews, and regulatory complications for foreign businesses.
2. South Korea and Japan Deepening Security Cooperation Against North Korea: Both countries will deepen security cooperation with each other and the US, possibly implementing a trilateral data-sharing mechanism to track North Korean missile launches.
3. Possible US-China Talks on Korean Peninsula: Tensions involving South Korea, Japan, the US, and North Korea may encourage high-level US-China defense talks to stabilize the Korean Peninsula.
4. Philippines Firmly Defending Maritime Claims Against China: Enhanced US-Philippines defense ties will prompt Manila to assert its maritime claims more firmly, increasing patrols and asserting boundaries in the South China Sea.
5. South China Sea Tensions Affecting Taiwan Strait: Strengthened security ties with Japan and Australia will embolden the Philippines against Chinese claims, potentially escalating South China Sea confrontations, with spillover risks to the Taiwan Strait.
6. Thailand’s Relations with the West at Risk if Government Formation Fails: Thailand’s leading party, Move Forward, faces legal obstacles in government formation. Military interference in the democratic process could spark social unrest and strain Western diplomatic ties.
7. Deteriorating Cambodia-West Relations Post-Elections: Prime Minister Hun Sen’s expected electoral win will likely sour Cambodia’s relations with Western democracies and Japan, possibly leading to sanctions.

South Asia

Key predictions for South Asia in Q3 2023 include:

1. Limited Climate Success at India’s G20 Summit: India will highlight global south climate issues at the G20 summit but achieve limited success as Western negotiators resist incorporating such topics into the final declaration.
2. Worsening Power Outages Amid Summer Demand: Bangladesh, India, and Pakistan will face increased pressure on power grids during summer, leading to widespread outages despite efforts to procure cheap Russian energy supplies.
3. Declining ISIS-K Attacks in Afghanistan: While ISIS-K is likely to resume sporadic attacks, Taliban counterterrorism efforts will help slow its resurgence, maintaining some security and stability.
4. Worsening Political and Economic Instability in Pakistan: Pre-election instability in Pakistan will escalate amid economic deterioration and rising armed threats. Former PM Imran Khan’s popularity may provoke further military attempts to marginalize him.

Middle East and North Africa

Key predictions for the MENA region in Q3 2023 include:

1. Worsening Crises in North Africa Due to Ongoing Drought: Historic drought in Morocco, Tunisia, and Algeria will worsen summer grain harvest failures, increasing dependency on imported food and exacerbating economic crises.
2. Iran’s Continued Maritime Harassment in the Gulf: Tehran will persist in Gulf maritime harassment, primarily targeting Israeli and US interests, with collateral risks for regional countries and businesses.
3. Turkey’s Technocratic and Populist Economic Policies: Turkey will adopt a mix of technocratic and populist economic policies under a new cabinet led by veteran technocrat Mehmet Şimşek.
4. Decreasing Turkish Resistance to Sweden’s NATO Membership: With no elections requiring nationalist appeasement, Turkey will have fewer incentives to block Sweden’s NATO bid, likely approving it by the July summit.
5. Turkey’s Assertive Foreign Policy to Reinforce Regional Status: Turkey may return to assertive foreign policies, including aggressive oil exploration in the Eastern Mediterranean and military operations in Syria and Iraq, asserting its regional status amid a stable domestic political scene.
6. China Strengthening Middle East Ties: China’s economic and diplomatic influence will be prominent in the Middle East during the BRICS and Shanghai Cooperation Organization summits in Q3 2023, countered by US efforts to bolster American-backed security frameworks.

Latin America

Key predictions for Latin America in Q3 2023 include:

1. Increased Economic Risks in Argentina Due to Primary Elections: Argentina’s August 13 primary elections will signal potential general election outcomes, with a populist coalition or liberal candidate victory likely to unsettle investors.
2. Brazilian Congress Pressure on President’s Environmental Policies: The Brazilian government will continue anti-deforestation efforts, facing congressional resistance aimed at limiting presidential authority and forcing compromises.
3. Pro-Business Constitution Draft in Chile: Chile’s right-leaning constitutional council will finalize a new pro-business draft constitution, easing investor concerns, particularly in the mining sector.
4. Populist Electoral Win Deteriorating Ecuador’s Business Environment: Early elections in Ecuador will likely lead to a nationalist government, worsening the business climate.

Sub-Saharan Africa

There are several expected developments in Sub-Saharan Africa during the third quarter of 2023 as follows:

1- Continued unrest and ongoing war in Sudan: Despite ongoing mediation efforts by global and regional powers, it is likely that the conflict in Sudan will continue during the third quarter of the current year. It is unlikely that there will be an agreement between Sudanese Armed Forces commander Abdel Fattah al-Burhan and Rapid Support Forces leader Mohamed Hamdan Dagalo (Hemedti). This is because both sides see it as the best opportunity to ensure their continued presence in power in Sudan.

2- Increasing risks of conflicts erupting in Sudan’s neighboring countries: Humanitarian crisis in the region is also expected to worsen, with civilians likely to continue fleeing to neighboring countries such as Egypt, Chad, and South Sudan. The number of refugees is expected to surpass the million mark during the third quarter of the current year, leading to increased risks of conflicts and crises in the region and neighboring countries.

3- Escalation of political and social unrest in Nigeria: Nigerian President Bola Tinubu is expected to seek to appease strategic and vital regions in the country, including appointing prominent political positions to natives of these regions. Consequently, resistance to Tinubu is likely to significantly increase in deprived and marginalized areas, making them more prone to disturbances during the third quarter of the current year due to the prevailing perception that national resource distribution largely follows regional power distribution.

4- Deepening public discontent with the ruling party in South Africa: The ruling African National Congress in South Africa is experiencing historically low levels of support, with growing public discontent likely due to ongoing electricity supply crises, declining economic growth rates, increasing pressure on commercial activity, and deteriorating business environment in the country.

5- Re-election of President Emmerson Mnangagwa in Zimbabwe: Elections in Zimbabwe are likely to be marred by unfair practices, widespread violations during the voting process, and violence. This is due to President Emmerson Mnangagwa’s desire to use all available powers to secure a second term. Consequently, Mnangagwa is scheduled to be re-elected on August 23, despite the challenge from former parliamentarian and leader of the opposition Citizens’ Coalition for Change, Nelson Chamisa.

6- Russia’s use of the African Summit to enhance its influence on the African coast: Russia will use its upcoming summit with African countries, to be hosted in St. Petersburg at the end of July 2023, to negotiate various deals with countries in the African coastal region, primarily focusing on infrastructure, technology, and energy projects. Consequently, Russian food aid is expected to be highly politically beneficial to military leaders in Mali and Burkina Faso in particular.

7- Western powers’ attempt to counter Russian influence in Africa: The increasing Russian influence in Africa is expected to raise concerns among Western powers amidst broader geopolitical competition between Moscow, Beijing, and them within the continent. The United States and France, in particular, are likely to attempt to counter the summit’s impact by announcing new security and investment deals in Chad and Niger, even as Western countries criticize political regimes in these countries.

Source:
2023 Third-Quarter Forecast, Stratfor, June 20, 2023