FrontierView recently launched The Lens, a weekly newsletter published by our Global Economics and Scenarios team to highlight developments and trends that will have the highest impact on business scenarios. Below is an excerpt from this week’s edition covering the latest developments in Brexit and results of Israel’s September re-run elections. For the full newsletter, subscribe today.
Brexit: extension is likely, but market outlook will not improve
Key Takeaways
- The Supreme Court ruled that the UK Prime Minister (PM) Boris Johnson acted unlawfully, when suspending parliament and members of parliament returned to Westminster on September 25.
- Yesterday, Johnson presented an alternative to Theresa May’s Brexit plan to the EU, proposing a regulatory border between UK, Northern Ireland and the Republic of Ireland until 2025, and a customs border in the Irish Sea.
- The UK needs an Article 50 extension before the current deadline on October 31st. It seems likely that PM Johnson will request the extension, and that it will be granted, extending the Brexit clock again.
Our View
FrontierView is not decreasing its likelihood of No-Deal Brexit, which remains 30%. Firms should remain cautious until the EU formally grants an extension of Article 50 to the UK: the deadline is fast approaching and Johnson has not signaled he intends to request an extension of article 50, his Brexit plan will not satisfy the EU and the UK parliament, and any EU member out of the 27 could veto another extension of article 50. Thus, the risk of a disorderly Brexit remains. However, Johnson is likely to follow the Benn law against No-Deal Brexit, to avoid facing court charges as well as a major threat to his support in likely upcoming elections. No-Deal Brexit is not a politically viable strategy for him, which he will eventually compel him to seek an election, after extending article 50.
Business Implications
An article 50 extension means that uncertainty will be extended into 2020, weighing on sales across sectors. Businesses should clearly identify their Brexit exposure and enhance their contingency plans. The 2020 economic outlook will suffer from elevated political uncertainty.
Athanasia Kokkinogeni, Senior Analyst for Europe
FrontierView clients: See our Brexit Scenarios Update for more
Israel’s September re-run elections produce tight results – again
Key Takeaways
- Rescheduled Israeli elections produced tight results, with Benjamin Netanyahu’s Likud party losing ground to the Blue-White party. Likud only won 32 seats, a loss of 6 seats from the April elections.
- Likud’s poor electoral showing is due to a disagreements with the right wing over fundamental policy differences.
- Political disputes between the Likud and the hardline Jewish parties could threaten the stability of the next government, should another right-wing coalition be formed.
- Netanyahu is in hot waters as a dissolved government impedes his ability to pass a key immunity law protecting him as a prime minister from indictments.
Our View
FrontierView expects government formation to be laborsome with the right-wing still split over fundamental policies. However, Netanyahu’s upcoming corruption indictment hearing may drive him to soften his approach towards right-wing hardliners in order to protect his immunity. Failure to form a right-wing coalition may well motivate Likud and Blue-White to form a national unity government.
Business Implications
Policy making is expected to grow more complex, while the formation of the 2020 budget is likely to be delayed, creating uncertainty for companies selling to the government. The shekel is likely to remain stable and the political turmoil not yet expected to affect consumer spending.
FrontierView clients: See our MENA Market Review for further insights