Forecasting the World in 2019 – Global Economic Predictions
In the era of Donald Trump and Brexit, protectionism and populism, is the world getting harder to predict? For the Financial Times’s forecasters, it seems so. We got eight of last year’s 20 questions wrong, our poorest result for several years. We erred in saying impeachment proceedings would start against Donald Trump (though Edward Luce is doubling down on his prediction this year), backed the wrong candidate for Mexican president, and were wrong on a eurozone budget and who would win the World Cup.
We were over-optimistic on oil prices, emerging market growth, and the S&P 500. But, given the recent departure of India’s central bank governor, we may have been only premature in suggesting premier Narendra Modi would try another economic experiment in 2018.
So, for the second year running, the FT team was roundly beaten by our reader forecasting contest winner — congratulations go to Mohammed Shahake Miah of Rochdale, England, who got only three questions wrong. To play the prediction game, provide your answers to the 20 questions below, plus the tiebreaker, and submit your (real) name and email. Happy 2019!
Will Brexit be stopped?
Yes. At the eleventh hour Britain will rescue itself from this act of self-harm. Brexit means Brexit, Theresa May said in 2016, but after two years of bitter wrangling even the prime minister’s own party cannot agree what that means in practice. Parliament’s failure to agree on any one version of Brexit will turn the issue back to voters. In a second referendum, they will vote to restore the UK’s reputation as a nation unwilling to sacrifice prosperity and security to ideological obsession. This prediction is offered as much in hope as expectation!
Will Jeremy Corbyn become UK prime minister?
No. The opposition leader has smoothed his public image, but failed to reach beyond Labour’s base. Britain may well have a general election in 2019, but it is far from certain he will win. Opinion polls suggest Mr Corbyn’s popularity lags behind that of Theresa May and of his own party. His performance has not convinced voters he is fit to lead. But if the Conservative party continues its war of attrition over Europe, Labour could yet emerge from the rubble — especially if Mr Corbyn is no longer at the helm.
Will France’s Emmanuel Macron get his reforms back on track after the gilets jaunes protests?
Yes. The French president has no choice. To give up would be to cease to exist politically. A tactical pause seems inevitable to allow anti-government protesters’ anger to subside and the effects of a housing tax cut and a higher minimum wage to kick in. But Mr Macron will proceed with reforms to pensions, unemployment insurance and business regulation. Measures to streamline the state will be more sensitive, but could help answer protesters’ complaints over high taxes. To avoid further unrest, however, Mr Macron will have to do a much better job of taking people with him.
Will populists make big gains in European Parliament elections?
Yes. These elections are perfectly set up for populists and nationalists to make big gains. Polls suggest immigration is the top issue in most countries. European elections are often used to register a protest vote, and are conducted using proportional representation — which helps the populists. Nationalist parties including Matteo Salvini’s League in Italy, the Alternative for Germany and the Sweden Democrats are likely to make sizeable gains. Overall, the centrist pro-EU majority will hold. But the next parliament is set to be much more divided and disputatious.
Will the Democrats attempt to impeach President Donald Trump?
Yes. The Robert Mueller probe will come to a flaming conclusion in early 2019 with a flurry of indictments and a damning report. Mr Trump’s dismissal of its findings — of conspiring with Russia to hack Democratic communications and co-ordinate their release — will enrage the Democratic base. The speaker, Nancy Pelosi, will agree to hearings. Mr Trump will be impeached by a simple majority in the Democratic House. But the Senate, needing a two-thirds majority to convict, will exonerate him. The scene will be set for a “rule of law” presidential election in 2020.
Will the trade truce hold between Donald Trump and China’s Xi Jinping?
No. Although a ceasefire in the tariff war between the US and the EU has held since July, Mr Trump and others in his administration have deeper-seated criticisms of what they say are China’s habitual trade-distorting actions. The US in effect says that to avoid more tariffs on goods from China, the agreement struck between Mr Trump and Mr Xi in December means China must start to dismantle its entire state-interventionist development model in the next three months. This will not happen. The US will resume increasing tariffs on imports from China before midyear.
Will Russia escalate military action against Ukraine?
No. Russia’s seizure of three Ukrainian warships in the Black Sea in November was ominous. Ukraine’s split with the Russian Orthodox church has inflamed tensions. Unpopular pension reforms have dented Vladimir Putin’s approval ratings; military action against Ukraine could be a distraction and patriotic rallying-point. But Russia’s president carefully weighs risks. Kiev’s army is better trained and equipped than five years ago; Russians would not accept big casualties from fighting a “brother” nation. Caution will prevail in the Kremlin.
Will there be a new financial crisis?
No, if we define a financial crisis as one in which policymakers need to rescue, or resolve, more than one globally significant financial institution at the same time. But we will see periods of turbulence in financial markets and a number of national economies. A reason for optimism is that global financial institutions’ balance sheets have strengthened substantially since the 2008 crisis. Reasons for pessimism are that interest rates remain low, debt levels exceptional and many asset prices high. Vulnerabilities include several emerging markets, China, Brexit-hit Britain, Italian sovereign debt and US stocks.
Will Narendra Modi still be prime minister after India’s parliamentary polls?
Yes. Mr Modi’s ruling Bharatiya Janata party recently suffered a dramatic setback in its critical Hindi-speaking northern stronghold, where the seemingly moribund opposition Congress won power in three BJP-ruled states. The losses suggest that Mr Modi is struggling to fulfil the high expectations he had raised in voters in 2014. But the prime minister remains personally popular, and is a charismatic, determined campaigner. He is likely to pull out all the stops — including a wave of populist spending — to secure his victory.
Will the disputes in the South China Sea blow up?
No. Beijing is preoccupied with the trade war with the US and does not want to provide Donald Trump with any more excuses to lash out at China. No other claimant country is likely to antagonise China in the disputed waters because of the overwhelming asymmetry of force that exists. Beijing will continue quietly to build up and militarise the artificial islands in the South China Sea but will not make any bolder moves, at least in 2019.
Will Jair Bolsonaro boost Brazilian economic growth?
Yes. South America’s biggest economy is in any case on the brink of a cyclical recovery from its biggest-ever recession. President Bolsonaro’s proposed economic reforms have increased the excitement that already exists among investors. These liberalising measures, steered by the University of Chicago-educated economy minister, constitute the more sensible parts of an otherwise often odious government platform. If Mr Bolsonaro can get some of those measures through Congress, especially a much-needed pension reform, that would give the economy a further boost.
John Paul Rathbone
Will Saudi Crown Prince Mohammed bin Salman survive the aftermath of the killing of Jamal Khashoggi?
Yes. The young prince has spent three years consolidating his power and sidelining rivals. King Salman, his ageing father, has stood by his favourite son and it would be a humiliation to demote him. Internationally, Donald Trump has made clear he considers US relations with the world’s top oil exporter — and the billions of dollars of investments and arms sales Prince Mohammed has promised — far more important than the brutal Khashoggi murder. One caveat: the prince has proven unpredictable and headstrong. If another rash action under his watch triggers a fresh international crisis, the tide could shift.
Will the S&P 500 finish 2019 above 3,000?
No. Analysts’ median estimates are for a close above that level, despite the recent turbulence. But the positive factors behind one of the longest Wall Street bull runs are fading. Earnings growth will be slower and margins compressed. A pause in rate-tightening by the Federal Reserve, capping the dollar’s strength, and stimulus from China should help sentiment. But the cycle is long in the tooth and corporate credit stress is rising. No sector has partied as hard as credit during the era of easy money. As the music fades, the equity market will discover balance sheets matter.
Will Ethiopia’s prime minister be able to maintain the momentum of one of Africa’s most striking transformations?
Yes. Abiy Ahmed, who rose to power in April, was by far the biggest surprise in Africa of 2018. He freed thousands of political prisoners, allowed banned opposition groups back, made peace with Eritrea and appointed a cabinet of whom half are women. The changes electrified much of the continent. Given the courage and resolve he has shown, it would be rash to bet against Mr Ahmed — even if he has taken on vested interests who have tried to assassinate him once already and the road ahead remains strewn with dangers.
Will Brent crude end the year below $60 a barrel?
Yes. Oil prices have plunged in the past three months thanks to runaway production growth in the US, and gathering clouds over the economic outlook. Both factors will persist in 2019. Lower prices will apply a brake to the US shale industry, but there is enough momentum in the system, including wells drilled and waiting to be brought into production, to keep output rising. Opec and its allies attempted this month to stabilise prices by agreeing to cut output, but their enforcement discipline may fray.
Will Uber achieve the biggest IPO in history?
No. The $25bn that Alibaba raised in its record IPO, valuing it at nearly $170bn, is almost certainly out of reach. Recent tech stock declines and Uber’s big operating losses make the $120bn valuation touted by some bankers look a stretch. But the stock market has been starved of new high-growth companies and Uber, under fresh management, has a shot at a huge on-demand transport and logistics market. Its valuation could still rival the $100bn that Facebook attained in the record US tech IPO. A successful debut would also set the stage for tech companies hoping to follow, including Airbnb, Pinterest and Palantir.
Will Mark Zuckerberg step down as chairman of Facebook?
No. Given the governance issues at Facebook, he should. But he will not, at least not by his own will. Unlike Elon Musk, forced out of the Tesla chairmanship for flouting Securities and Exchange Commission rules, Mr Zuckerberg is not yet guilty of anything punishable (that could change if the Federal Trade Commission rules Facebook is in violation of a 2011 privacy agreement). The board could push him out, but he still has almost 60 per cent of voting rights — enough to continue managing for as long as he likes.
Will the US yield curve invert?
Yes. The slope formed by Treasury yields of various maturities has inverted — with short-term bond rates higher than longer term ones — ahead of most recessions, and is now perilously close to another inflection point. The 10-year Treasury yield is unlikely to climb much above 3 per cent, pinned down by forces like disinflationary demographics and demand for safe assets, while the Fed is still likely to lift rates a few times in 2019. That should, though barely, invert the curve — hinting at trouble later on.
Will Huawei lose its foothold outside China?
No. The Chinese telecoms equipment giant will find itself limited in key markets in the west. The US and Australia have already banned it. Others, such as the UK, Canada, Germany and France, are likely to enforce partial limits such as blocking Huawei from supplying equipment to their “core” 5G networks while allowing it to engage in more peripheral work. But this will by no means stop Huawei in its tracks. Its presence in emerging markets, global dominance in handsets and growing enterprise business will see it through until the advent of the internet of things provides another big boost.
Will the Nissan-Renault alliance survive without Carlos Ghosn?
Yes. Things certainly do not look pretty for the alliance: one of the few things clear about Mr Ghosn’s arrest and downfall is that it was a symptom of tensions between Tokyo and Paris. Those look primed to intensify before they subside. Still, as this debacle unfolds a number of assumptions will be challenged — among them the credo that Mr Ghosn was an indispensable glue for the alliance. Its members are deeply entwined, and represent one another’s best chance to evolve the mass-market technologies needed in the future. A deal will be found and the band will stay together.
Tiebreaker: Who will win the Rugby World Cup?
Article source: https://www.ft.com/content/afcd9026-045a-11e9-99df-6183d3002ee1