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2013's Forecasting Report Card

Forecast

Monday, January 6, 2014 - 04:01 ! Print

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Editor's Note: This report card

evaluates Stratfor's 2013 annual
forecast and provides concise
predictions for 2014.

Europe's Economic Crisis

Prediction: High unemployment rates
will deepen the social and political
consequences of the crisis as economic
turmoil spreads northward on the
Continent. Although extremist or antiestablishment parties will gain influence
over the political debate, they will not
be strong enough to take power in any eurozone country and the traditional elites will manage to stay in charge in
2013.
Evaluation: Our forecast that the European Central Bank would
have the tools to prevent a widespread financial panic in 2013
proved correct, and the traditional political elite managed to stay
in power. However, rising unemployment weakened support for
the political establishment, while extremist, Euroskeptical and
anti-establishment parties gained popularity and increasingly
influenced the political debate. We also correctly forecast the
spread of the crisis to the north, with core countries such as
France and the Netherlands coping with the political and social
consequences of stagnating economic activity.
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Outlook for 2014: While most countries in the eurozone could

see timid economic growth next year, unemployment will remain
at critically high levels while consumer and corporate debt will
continue to pile up. There will be more protests and more social unrest in 2014, which will continue to erode popular
support for most of the traditional political parties in Europe. Nationalist and Euroskeptical parties will benefit from
this dynamic and will play a bigger role in obstructing deeper structural reforms and integration policies attempted by
the EU bureaucracy.

Ukraine's Relations with Russia and the West

Prediction: Some sort of compromise between Russia and Ukraine over energy infrastructure, and Russia's push
for Ukrainian membership in the Customs Union, is likely in 2013.
Evaluation: While Ukraine pursued energy deals with many
European countries to help lessen its dependence on Russian
energy, we correctly forecast it would not be enough. Ukraine
ultimately decided not to pursue closer integration with the
European Union by not signing the bloc's Eastern Partnership
agreement. Russia was able to draw a line with Brussels on how
far Ukraine will integrate with the West and is now bargaining
with Kiev over more favorable energy terms.

Click to Enlarge

Outlook for 2014: Ukraine will now have more room to

maneuver in its negotiations with Russia over natural gas and
financial issues. Kiev will not abandon its ties with the European
Union completely, but financial considerations will push Ukraine
to be more cooperative with Russia on political and energy

matters.

Mexico's Push for Reforms

Prediction: Legislative gridlock will come to an end, and the country will pass socio-economic reforms including
education, tax and energy reforms. These reforms will cause scattered social unrest, and implementation will take
years.
Evaluation: We correctly assessed that the Pact for Mexico
would survive and be an effective mechanism for realizing a wide
array of reforms before the end of the year. In September,
education reform was passed. In October, tax reform was
passed. Electoral reform was approved in early December, and
legislators are aiming to pass energy reform before the end of
the year. Teachers have protested the education reform, and
leftist groups certainly will protest the upcoming energy reform.
Secondary legislation for many of these reforms has been
delayed.
Click to Enlarge

Outlook for 2014: As most of the major constitutional reforms

wrap up, and as 2015 midterm elections approach, the Pact for
Mexico will likely end in 2014. This does not mean there will not
be bipartisan cooperation, but the string of bold, ambitious reforms has probably concluded. 2014 will be all about
crafting the secondary legislation to turn these high-level reforms from an idea into a reality. The shape of those
laws will determine each reform's impact.

The Effects of China's Economic Shift

Prediction: The decline of low-end coastal manufacturing in China will present enormous opportunities for
Southeast Asian countries like Indonesia, Vietnam, the Philippines and potentially Myanmar all of which will
continue pushing strongly for foreign investment into not only natural resources and raw materials industries but also
better urban transport, power generation and materials processing infrastructure. At the same time, China's

readjustment to lower overall growth rates will pose near-term challenges, as Chinese consumption of raw materials
on which much of Southeast Asia has come to depend stabilizes from the unsustainable highs of 2010-2011. It
could also accelerate the transfer of Japanese business and investment toward emerging Southeast Asian partners
as diplomatic tensions and territorial disputes threaten Japanese manufacturing and business interests in China.
Evaluation: In 2013, the emerging Southeast Asian economies
demonstrated strong viability in the shifting of global
manufacturing chains outside of China. Bolstered by better
infrastructure, political stability and the government's strong
commitment for foreign investment, Vietnam is recovering from
its economic turmoil and embarking on a new wave of
investment inflow as Hanoi shifts toward value-added industry.
Myanmar, though still in the nascent phase, is also poised for
rising investment inflow from countries other than its immediate
neighbors. Indonesia, on the other hand, is struggling with an
immediate challenge of falling exports and commodity prices, as
Click to Enlarge
well as the imminent tapering of easy monetary policies from the
developed world. The ongoing tensions with China and rising
costs are encouraging Japanese businesses to look for Southeast Asian markets as Tokyo seeks ways to
counterbalance China.
Outlook for 2014: We expect the global manufacturing supply chain to continue shifting. However, the inevitable
withdrawal of quantitative easing from the developed economies will put greater pressure on the Southeast Asian
countries, forcing them to modify their economic structures. Nonetheless, the stability of the Chinese economy
although it will grow more slowly could be beneficial to the Southeast Asian countries while delaying their
economic transitions.

The Syrian War and U.S.-Iranian Talks

Prediction: The potential use of chemical weapons by Alawite forces in a state of desperation could accelerate the
unraveling of the region; a U.S.-led coalition would have to assemble in haste to contain the chemical weapons
threat. To be clear, the United States will make every effort possible to avoid another military campaign in the Islamic
world this year. A military conflict between the United States and Iran remains unlikely in 2013. The United States is
more likely to allow the effects of sanctions and a reversal of Iran's fortunes in Syria and Lebanon to run their course
and continue to weaken Iran's hand than to agree to significant concessions to temper ongoing tensions with
Tehran.
Evaluation: The wild-card scenario of a chemical weapons
attack by the Syrian regime did play out, but we were correct in
emphasizing the extreme U.S. reluctance to engage in such a
military campaign. U.S. President Barack Obama needlessly
referred the vote to Congress, where he fully expected to
encounter resistance, while buying time in backchannel
negotiations that led to the current negotiating track with Iran.
Russia at the same time seized the opportunity to present itself
as the pragmatic statesman with its plan to remove Syria's
chemical weapons stockpiles.
Click to Enlarge

Outlook for 2014: Though we did not specifically forecast that

the Iranian elections in 2013 would create the political alignment

needed to launch U.S.-Iranian negotiations, Stratfor has long argued that a U.S.-Israeli attack on Iran was highly
unlikely and that it was only a matter of time before Washington and Tehran began to seriously pursue a strategic
rapprochement. The United States will prioritize its negotiation with Iran in 2014 and will not risk undermining this
negotiation by significantly boosting support for Syrian rebels. Russia will try to leverage its ties to the al Assad
regime and its direct involvement in neutralizing Syria's chemical weapons stash to bargain with the United States
on other matters in Europe, while Washington needs Moscow's cooperation to see its Iran negotiation through.

France's Intervention in Mali

Prediction: The military intervention in Mali will occur incrementally as a result of strategic constraints and
conflicting interests with Algeria, an emerging regional power. The intervention could begin during the third quarter
of 2013, after several months of diplomacy and training to signal to Mali's neighbors and stakeholders that the
strategy has comprehensive safeguards.
Evaluation: The failure to correctly predict the timing of the
French intervention into Mali was due to an unexpected Islamist
offensive south of the Niger River. This push threatened the
intended staging areas for the originally planned intervention and
prompted France to mount a rapid military operation to secure
these areas.

Click to Enlarge

Outlook for 2014: In 2014, security operations in the country will

continue as more U.N. forces arrive in Mali. France itself will
draw down its troop levels as Malian elections are finally
wrapped up and a secure transition has been guaranteed. A risk
for occasional attacks by militants will continue within northern
Mali and the wider Sahel region.

Ties Between the Egyptian Military and the Muslim Brotherhood

Prediction: The Muslim Brotherhood's popularity among the people will be undermined as the movement takes on
a larger role in governance under severe economic conditions. However, the military and the Brotherhood will not be
capable of engaging in bold, unilateral moves against one another. Both sides will continue trying to set boundaries
and ultimately develop a new working agreement. There will be obstacles and occasional political crises as a result,
but this year will not see a break between the Muslim Brotherhood and the military.
Evaluation: Since the first protests broke out against former
Egyptian President Hosni Mubarak, Stratfor maintained that the
military not any opposition force that would rise out of the
crisis would remain the key pillar of the state and that
decision-making would rest with the generals in post-Mubarak
Egypt. However, we failed to anticipate that in 2013 the military
would feel confident enough to sever ties with the Muslim
Brotherhood instead of allowing the Brotherhood to continue to
absorb criticism for the state's growing economic problems.
Click to Enlarge

Outlook for 2014: The Egyptian military will use the election
cycle in 2014 to further entrench its authority and stack the

government with political allies. That said, persistent economic

stress and the large number of Islamists now denied a political future will fuel a jihadist resurgence in Egypt,
spreading increasingly from Sinai to the mainland.

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This Forecast is part of multiple Timelines

- Choose Timeline -

NEWER $

JAN 7, 2014

Hungary Targets Foreign Banks

JAN 6, 2014

Annual Forecast 2014

JAN 6, 2014

2013's Forecasting Report Card

DEC 31, 2013

Europe: New Year, Old Resolutions

DEC 30, 2013

2014 Annual Forecast Preview

DEC 27, 2013

Hungary's Motivation in an Energy Dispute

DEC 23, 2013

China: Death Sentence Expected For Former Standing Committee Member

DEC 23, 2013

Germany's Trilateral Initiative with Russia and Poland

DEC 17, 2013

The Geopolitical Realities Behind the Ukraine-Russia Natural Gas Deal

DEC 17, 2013

What to Expect From Germany's New Coalition

DEC 16, 2013

China's Dream of Its Own 'Monroe Doctrine'

DEC 16, 2013

The Evolution of Central Europe

OLDER %

EDITOR'S CHOICE

Mexico's Normalista Protests Threaten to Spread

How the End of 'Too Big to Fail' Will Hurt the Eurozone

A Chronology of the Geopolitics of a Nuclear Deal with Iran

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