Global Manufacturing Data Weak, China Critical Issue

The latest Purchasing Manager’s Index shows global manufacturing activity remained weak in November, which indicates limited economic growth for at least the next quarter. This was likely due to eurozone activity contracting and a poor economic activity in China. A critical problem facing the global economy is higher interest rates that are unlikely to be lowered in the medium term, and that is impacting manufacturing. China’s economy is of particular concern. Moody’s has issued a negative outlook on the country as the CCP attempts to stabilize the yuan and prop up stocks. The rating’s agency has noted weakened growth, municipal debt, and the property market issues, but Moody’s still kept China’s sovereign rating at A1 while dropping the outlook from stable to negative. In response to the report, China’s major state-owned banks stopped selling U.S. dollars, and importantly, the cost of insuring its sovereign debt significantly increased. Besides Moody’s, S&P has also commented that China’s property crisis could lead to growth in 2024 that is less than 3%, which is entirely insufficient for China’s economic goals or ability to maintain employment. China is unlikely to fully stabilize its economy because the tools the CCP prefers to use increase centralization and decrease innovation. In addition, the CCP is unwilling to let market forces eliminate unprofitable companies or allow the yuan to float on the market. Because China is so important to global manufacturing, this strongly indicates that there will be continued problems over the medium term. Finally, about one-third of countries who have a “negative” outlook by Moody have had their debt ratings downgraded with 18 months, which would have a further harmful impact on China’s economy.

Sahel’s Junta Alliance

The foreign ministers of Burkina Faso, Mali, and Niger have met to try and create a confederation based on economic interdependence and collective security. This Alliance of Sahel States, which was created in September, seeks to solidify the group and work out the specific details of how the organization will operate with the primary goal to have mutual defense against external threats. The discussion was similar to how the Economic Community of West African States (ECOWAS) operates, which the junta-led states were removed from because of coups. Besides the foreign ministers, the countries’ finance ministers are also seeking a way to establish an investment bank and monetary union. It remains unclear if this is a serious effort or merely an attempt to legitimize the coups. Nate Allen, an associate professor at the Africa Center for Strategic Studies, assessed that this was “‘an effort to entrench and legitimize (their) military governments’ more than to tackle the violent extremism which they have limited capacity to fight.” These countries are already facing significant problems. For example, Niger has revoked several deals with European governments and moved towards Russia instead, which could lead to efforts by France to contain the problem. In addition, violence has greatly expanded in all three countries since their coups, particularly in Burkina Faso. This agreement will not lead to greater stability in the region or improve the quality of life for residents of the countries, but it is likely to increase the power of the junta governments. As such, it is likely that the Alliance will lead to increased instability over the medium term as each of the governments seek to create legitimacy and hold on to power.

Commerce Department Seeks Power to Confront China

U.S. Secretary of Commerce Gina Raimondo spoke at the Reagan National Defense Forum and called for the department to have greater authority, power, and resources to prevent China and Russia from having access to sensitive technologies. She specifically said that China is “the biggest threat we’ve ever had.” Raimondo’s specific goals are to expand the power of the Bureau of Industry and Security (BIS) that keeps a blacklist of companies and organizations from importing U.S. sensitive technologies. BIS’s budget is only about $200 million, which is insufficient to handle the global technology competition with China. Importantly, this is a bipartisan issue as Representative Michael McCaul (R-Texas)-an important member of Congress on this issue-has stated, “I’m glad to see Secretary Raimondo agrees with me that BIS needs to be more muscular and robust –– and her commitment to make it so.” Overall, this is an indicator that the balkanization of technology between the U.S. and China will continue, but it is also an indicator of greater hawkishness by both parties in the U.S. China hawks have called for increased actions against the CCP’s technology theft and sought ways to contain them without direct confrontation, which means that giving the Commerce Department greater authority on the issue could be used to further challenge China’s rise and aggression.

Meta Removes 4,800 Fake Accounts

Meta, the parent company of Facebook and Instagram, has removed almost 5,000 accounts for coordinated inauthentic behavior used by a Chinese threat actor. As is typical with sock puppet accounts, they used pretexting of fake photos, names, and locations to appear to be Americans commenting on political issues. Interestingly, the accounts were not focused on spreading disinformation, but they were used to increase polarization by spreading inflammatory accounts by real people and organizations. Although Meta removed the accounts, this incident highlights the persistent threat on social media by nation-state actors wanting to cause political problems. Threat actors do not have to lie or use disinformation to achieve their strategic goals either.

Insurers Face Increased Political Risks

Insurers are extremely likely to face major problems over the coming year as geopolitical and environmental risks significantly increase. Insurance companies are reassessing their business in major hot spots as they face increased risks from war, civil disorder, political violence, terrorism, strikes, and riots. For example, they have largely removed themselves from Ukraine and reducing operations in Israel. There are also major concerns about operating in Taiwan. In addition, the International Association of Insurance Supervisors issued a report demonstrating that insurers are “heavily exposed” to climate change due to underwriting of natural catastrophe risk. The exposure is likely to harm profits and reduce capital buffers. This is a negative indicator for economic stability as insurance forms the backbone for multinational corporations operating globally. If insurers decide to reduce operations, then it is significantly less likely that corporations can or will operate there as well.

EU Warns of Terrorist Attack Around Christmas

The EU Home Affairs Commission’s Ylva Johansson has warned of “huge risk of terrorist attacks in the European Union” over the winter holidays. This was in response to a German tourist being stabbed in Paris by an Islamist terrorist pledged to the Islamic State. There are several important factors leading to this assessment, especially the continued Israel-Hamas conflict that has significantly polarized Western society. Antisemitic attacks in Europe have significantly increased since the start of the war, and there is a high likelihood of an Islamist attack. Two individuals were already detained in Germany for planning an Islamist attack on the Christmas market in Leverkusen. Based on the relevant indicators and considering historical trends, corporations should take the threat of such attacks seriously over the winter holidays, especially around or on Christmas day and the New Year. Crowded public spaces in areas popular with tourists and shoppers such as Christmas markets as well as entertainment venues and other festive events present attractive targets for terrorists. While complex coordinated attacks cannot be ruled out entirely, the main risk remains from self-radicalized individuals or small groups. Attacks would most likely involve bladed weapons, firearms, vehicles, and Improvised Explosive Devices (IEDs).