In addition to its weekly edition, UK magazine The Economist publishes an annual report assessing likely economic and political events over the year ahead. At the EuroFinance international cash and treasury conference in Budapest, Hungary, Daniel Franklin, executive editor of the publication offered a preview of The World in 2015, which will be issued next month.
Focusing on 10 areas, he began with the ‘fun items’ of 2015, which in addition to sporting events and movie launches include the New Horizon spaceship making the first visit to the planet Pluto after a voyage of more than eight years.
More heavyweight are the attempts at global accords on disaster risk, sustainable development and climate change. Franklin told his audience that the real input for decisions on what sustainable goals should be and the scope of their ambitiousness, as well as the opportunity to influence the process through lobbying were “happening right now”.
Third were the forces ranged against global cooperation, which included the growing success of populist parties, as demonstrated in last May’s European elections and rising nationalism in China, Japan and Russia. “These forces threaten to undermine a transatlantic trade deal and other such deals and could determine whether they are finalised,” said Franklin.
Noting that 2014 has already seen transformative elections in Europe, India and Indonesia, he added that mid-term elections in the US could see president Obama’s powers further restricted by a Republican victory, important elections before the year is over. In 2015, important elections will take place in Canada and Turkey, while the outcome of Myanmar’s election will test its ability to move further away from military rule. In addition, next May’s UK election is particularly uncertain although the prospect of a second coalition government still dominated by David Cameron’s Conservative party cannot be rule out. Cameron has promised a referendum to determine the UK’s continued membership of the European Union (EU) if reelected.
Item five was the broader international political and geopolitical risks. The stand-off between Russia and Ukraine is unlikely to see Russian president Vladimir Putin back down; indeed there could be further trouble in other parts of the former Soviet empire. In the Middle East, a decisive US military victory in the Islamic states was also doubtful given the strength of the opposition. In Iran, the November 24 deadline for agreement in the current nuclear talks could extend into next year if there is evidence of progress. Another potential flashpoint was the tension between China and Japan as well as other neighbouring countries, although this could actually recede next year.
As regards item six, the global economy, the big question was when the US Federal Reserve would raise interest rates, by how much and if they would be pre-empted by the Bank of England. This week’s market volatility was already mirroring the uncertainty. The world’s central banks were now on very different tracks as robust economic growth in the US and UK was offset by much weaker figures in much of Europe and Japan.
Price adjustment constituted item seven, with falling oil prices already damaging Russia’s economy rather more than sanctions imposed by the West but benefiting Europe’s economies. The year ahead was also likely to see a stronger US dollar approach parity with the euro and a weakening Japanese yen. These trends could be accompanied by accusations of unfair competition and protectionist trade policies. Meanwhile, following a period of relative decline caused by China’s steady rise as a major world economy, wage levels are poised to start rising again, with the US labour market steadily tightening.
Crises and Panics
Potential alarms in 2015 are likely to centre on three issues: the possibility of the Federal Reserve’s abandonment of quantitative easing (QE) and ultra-low interest rates going less smoothly than planned; shock waves caused if China’s economic growth eases more sharply than expected; and the possibility that as the eurozone’s weaker economies revive, those of France, Italy and even Germany could slip back into recession.
On a more positive note, global economic growth in 2015 should be superior to this year’s. The US and the UK are likely to be joined by India, Indonesia and Brazil as strong performers while even modest growth in the eurozone would represent an improvement. Tech industries, particularly those devoted to IT security, should also do well.
Finally, 2015 is likely to be marked by the following landmark developments:
- The US overtakes Saudi Arabia as the world’s largest oil producer.
- China overtakes the US as the world’s largest economy based on purchasing power parity (although by other measures it remains in second place).
- China’s maturing as a economic power will be further evidenced by foreign direct investment exceeding inward flows for the first time.
- Based on its active member numbers, the ‘population’ of Facebook will exceed that of China.
- The number of mobile phones in use will be greater that the total world population.
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