Forecasting Eye
It’s time for our annual look ahead to see what the New Year will bring.
First – how did we do last year?
WHAT WE GOT RIGHT – Chinese growth and the world economy slowing, an Italian election bringing in a more confrontational government, the Bitcoin collapse, UK growth at the upper end of the 1-2% range, volatile stock markets, Theresa May remaining Prime Minister till the end of the year, England reaching the soccer World Cup semis.
WHAT WE GOT WRONG – pretty well all our other sporting predictions. Most embarrassing is a toss up between ‘It will be hard for England not to win the rugby 6 Nations given that their hardest fixtures will be at home’ (they came fifth!) and the prediction that India’s cricketers would win the Test series in England (which they lost 4-1)!
WHAT WE DON’T YET KNOW – whether schools in England and Wales continue to rise in the world rankings; whether there was a real rise in the risk of nuclear war before the Chinese-brokered rapprochement between North Korea and the US.
We shouldn’t really mark our own homework but it looks like about 8 out of 10 for economics and about 2 out of 10 for sports.
What about 2019?
1) A major reflation in China with tax cuts and more infrastructural spend. And rising deficits elsewhere.
2) World growth looking pretty sluggish (the Chinese released their purchasing managers’ survey on 31 December which indicated contraction for the first time ever). It might tip over into recession but suspect there will be counter-deflationary action worldwide that prevents this. And weak oil prices will on balance boost growth.
3) Stock markets continuing to be volatile. Possibly weakening early in the year as growth data gets worse. And strengthening in the second half as reflationary measures are announced. But never rule out panic….
4) World politics. The largest economy to have an election is India (in April or May). At present the polls are suggesting that the Modi government stays in power. The European Parliament elections in May are likely to result in a more Eurosceptic Parliament despite Brexit (see below). The Nigerian elections on Feb 16 have the most obvious risk of violence.
5) More generally most of the political problems from 2018 look likely to continue through 2019. The US is now threatening to abrogate its Intermediate-Range Nuclear Forces Treaty with Russia. The trade dispute moratorium expires before the end of February and meanwhile the US is seeking a ruling that imports of cars are a national security risk! Iran, Syria and Ethiopia are still flashpoints. Afghanistan also has an election which may destabilise. With a Democrat Congress with its bit between the teeth and Robert Mueller collecting increasing amounts of evidence, the chances of President Trump being impeached will rise.
6) UK politics will continue to be convulsed by Brexit at least for the early part of the year. At present any of three possibilities might happen: the Withdrawal Agreement might pass, the UK could leave with a managed ‘No Deal’ or the UK might remain in the EU. Sorry not to give a more precise view….we genuinely don’t know, though suspect a deal of some kind remains likely if common sense (which has admittedly been a scarce commodity in the Brexit debate so far) prevails.
7) UK economic growth should be sluggish at best for the first part of the year, though if the Brexit indecision ends there will probably be a boost to the investment that has hitherto been blocked as a result of Brexit uncertainty.
8) The year when the internal contradictions of the Euro force the EU either to integrate economically or to risk the break up of the Eurozone is coming up – it is possible to defer the confrontation for a year or two but the boil will have to be lanced at some point since the Italians have clearly reached the point of austerity fatigue.
9) The sluggish economy combined with the impact of technology is bound to lead to high profile corporate collapses around the world. There is a good chance that a number of banks around the world will have to be refinanced. Oddly, Australia, despite a fairly stable economy, seems to have banks that are particularly at risk, partly because of a burst property bubble.
10) Now for our infamous sporting predictions. There will be World Cups in both rugby and cricket. For the cricket almost all the participants have a chance of winning. England, playing at home are actually the favourites. Is a victory too much to ask? For the rugby World Cup (held in Japan for the first time) New Zealand are the clear favourites but could they be upset by one of Ireland, Australia, South Africa, Wales or England? Our tennis experts think it is time for a new generation to start winning Grand Slams with Zverev the strongest contender. At time of writing, Liverpool are well ahead in the Premiership and look candidates to win but there are other teams with a chance. Just a wild thought – might Manchester United under the new and probably temporary manager do well in the European Champions Cup? Their team seems better suited to European football than domestic and they are likely to have few other competitions to distract them.
And finally may we wish all our readers a happy and enjoyable New Year. If they are successful too, that will be a bonus.
Contact: Douglas McWilliams dmcwilliams@cebr.com 07710 083 652