Emerging markets provide unique challenges for executives, and contingency planning is one way to better navigate these waters. Since the November 1 publication of FSG’s 2018 Events to Watch report, our analysts have continued to monitor and update their scenario analysis. This report update includes several changes to our estimated likelihood of certain events and a new event, which was recently published for our clients.
Three basic changes have taken place to the events. First, we no longer believe that a “Brexit cancelled” event has a sufficiently high probability to track going forward. The basic agreements struck between EU and UK negotiators in December moved talks past the ‘divorce bill’ and onto the design of a transitional deal. This has led to the inclusion of a new event – that Brexit negotiators fail to make sufficient progress on a transitional deal over 2018, and that the UK stumbles towards a hard Brexit.
Second, OPEC’s extension of its production quota has led to a revision of our likelihood estimates for our two oil events. OPEC members renewed their quota until the end of 2018 on November 30, and imposed quotas on Libya and Nigeria, which were previously exempt. With prices far higher than before the quota was imposed, member states seem likely to continue adhering to their production quotas. We dropped the likelihood that the OPEC deal is dismantled, leading to a 2018 oil supply glut, from a 25% probability to a 10% probability. Because this maintenance of the production quota leads to an ongoing restriction in the supply of oil to world markets, we also increased the likelihood of our oil supply shortage event.
Third, we have increased the likelihood for NAFTA exit event. The fifth round of NAFTA talks in November failed to make significant progress. Rhetoric from both President Donald Trump and US Trade Representative Robert Lighthizer suggest they are considering invoking Chapter 22 of the NAFTA Implementation Act, which allows the US president to cancel NAFTA by giving a six-month notice to Mexico and Canada. This would be done as a hardline tactic by the US to try and force major trade concessions, but it could backfire and result in the actual end of the NAFTA.
In addition to our global events, our teams identify and track regional disruptors to help executives with sensitivity to those markets. Current clients can access all of the regional and global updates in our updated report on FrontierView.