Marking our own report card,we reckon we were 100% correct in our political and economic predictions last year (copy of last year’s predictions available here for anyone who wants to check our marking). But looking back we don’t feel too pleased with our performance becausewe chickened out with a ‘don’t know’ on what was by far the most important subject – Brexit and its political consequences.

 

And alas our sporting predictions as ever also let us down – we correctly predicted England would win the Cricket World Cup (but not that it would go to a Super Over!) but a breakthrough year for tennis player Zverev did not materialise and then the All Blacks lost out in the Rugby World Cup in that epic semi final against England.

 

Will we do as well in 2020? Here are our forecasts:

 

• The world economy is speeding up in response to fiscal and monetary stimuli. But the debt mountain remains and many banks remain fragile. We expect a serious recession at some point in the coming years but probably not in 2020 where world GDP growth should run at about its recent average rate.

 

• There remains scope for pumping more money in through different routes to boost the world economy so financial markets could remain buoyed by this for most of the year. In the UK, equities have not fully priced back in the fact that Corbynism is ruled out for a period, and are likely to move up in the early part of the year, though they will remain volatile while the Brexit negotiations wax and wane.

 

• Trade talks become even more important. US China, US EU, UK EU, UK US and UK v pretty well anyone else will all be up for grabs and will cut across each other. Most practising economists are going to have to brush up on their trade theory because we will be asked about it all year.

 

• The UK consumer remains depressed despite real wage increases while an inventory overhang will also hold production below spending. UK growth will have to come from exports, public spending and investment that has been delayed as a result of the various uncertainties of the past three years. We expect moderate growth for the year, better than in 2019.
   
• We could yet have a US President removed from office (unlikely) or an extreme left wing President (possible). But equally Trump’s economic record could get him reelected – sorry not to give a better steer on an important issue.

 

• Two elections that might be even more important in the longer term are those in Taiwan and Israel, both of which look most likely to return their current leaders. Taiwan could well be the international flashpoint that defines the 2020s as China moves to restore what it believes to be its historic hegemony. Will the Hong Kong elections planned for September 2020 take place – it’s hard to see how they can in the present atmosphere?

 

• The Israeli elections may well mark the realignment of Middle East politics towards pro and anti Iran rather than pro and anti Israel. Iran also has elections but don’t expect Queensbury Rules to operate.

 

• France and Italy have regional elections planned and given the weakness of the governing coalition it is highly likely that there will be another Italian general election, the third in three years. Besides potentially collapsing banks, Italian austerity fatigue is probably the weakest link in the chain that supports the euro so any new elections in Italy will create worries. Cebr’s heterodox view is that the weakness of the German economy might paradoxically turn out to be a cohesive factor supporting the Euro, since it reduces the extent of the Eurozone’s performance divergence and hence the pressure for policy divergence. The French election could mark a new high point for Mme Le Pen, if so weakening President Macron’s reform mandate.
  
   
• We won’t duck out of a Brexit prediction for the second year in a row. Brexit will happen formally in January. But the real negotiations on the future relationship between the UK and the EU are planned to be completed by December, though we doubt this to be possible. This will all be played out in the media and stubborn negotiating positions will provide news headlines and move markets through the year. We expect a reasonable free trade deal to emerge, but the EU, which forced its own agenda into the initial negotiations with Mrs May, will have to be more flexible with Mr Johnson to make this happen. We think the two biggest sticking points in reality will be tech and finance, even if money, fishing and agriculture make the headlines. In the background we expect the US to be preparing quite an attractive offer to try to drag the UK out of the European economic sphere, though how far this will go will depend on the Presidential election.

 

• And now for the sporting predictions. It’s an Olympic Games year, in Tokyo for the first time since 1964. The theme is ‘Requiem and Rebirth’. Expect the Japanese to put more focus on the Paralympics than before. If the wonderful Japanese Rugby World Cup is any indicator, also expect the home team to come flying out of the blocks. The major soccer competition is the Euro 2020 finals, played in 13 different countries for the first time, but with the semis and the final at Wembley. England are in with a chance, but so are about 10 other teams. If the results go with rankings, France will win. In cricket the world 20-20s are played in Australia. This is traditionally the least predictable tournament, and it will be surprising if England’s World Cup winning performance this year runs on until the next tournament. More likely the hosts or a newly revitalised India will reassert their dominance.

 

Whether you like the result or not, the UK election in December broke the log jam that had paralysed UK policy for over 4 years. Even apart from Brexit, there is quite a policy backlog and we are expecting 2020 to result in new approaches to regional development, infrastructure, structure of government, housing and homelessness, energy, road pricing, treatment of the media (BBC funding), role of science, roles of universities, care for the aged, environmental policy and possibly competition policy. Decisions about the extent of Chinese involvement in UK infrastructure will be important markers for the future. There is a real ferment of ideas amongst the policy wonks and it will be interesting to see if civil servants, who will be under fire for allegedly obstructing Brexit, will be able to embrace ideas from outside more successfully than in the past. I hope they can because a civil service that at least has the objective of impartiality is worth maintaining if at all possible.

 

We wish all our readers a happy new year. If they can make it prosperous as well, good luck to them.

 

Contact: Douglas McWilliams dmcwilliams@cebr.com phone: 07710 083652