Duncan’s Economic Blog

Predictions for 2011

Posted in Uncategorized by duncanseconomicblog on January 1, 2011

January the first seems to offer the ideal time to offer some hostages to fortune and risk making myself look very silly this time next year. In that spirit – 10 predictions for 2011 (actually a bit more than 10):

UK Economy

1/ The UK economic recovery will slow in Q1 and Q2. By the third quarter of this year growth will be perilously close to zero. 50/50 chance of an actual outright contraction in Q3 GDP.

2/ The OBR’s export predictions will surprise many analysts by being about right. Low sterling and stagnant wages will boost UK export competiveness and lead to decent growth in exports. However, the OBR will be very wrong on import growth which will surprise to the upside leading no major improvement in the balance of trade. The Coalition’s export-led growth strategy will fail.

World Economy

3/ The first quarter will see a serious Eurozone crisis with Greece, Ireland, Spain, Belgium and Portugal priced out of bond markets and with heavy refinancing needs. Italy will be relatively unaffected and able to fund itself domestically.

Following a partial Greek default, Germany will relent to pressure and agree to the issuance of Eurozone common bonds by the middle of the year. The reopening of the Lisbon Treaty will prove a huge headache for the Coalition.

Continent-wide austerity will leave much of the Eurozone stuck in recession by year-end.

5/ US growth will surprise to the downside with unemployment breaking 10% by the end of the first quarter and staying there until the end of the year.

6/ Global commodity prices (especially food and oil) will continue to rise. Across the West headline inflation will rise whilst core inflation continues to moderate. Central Banks will face a huge dilemma over whether to tighten policy.

UK Politics

7/ Labour will maintain a poll lead for all of 2011. The AV referendum will be won by the No camp. The Lib Dems will be polling 5-8% for most of the year. Clegg will face a challenge at conference time which will be easily defeated.

US Politics

8/ Obama’s approval ratings will hit new lows. Talk will grow of a primary challenge. Jon Huntsman, having resigned as US Ambassador to China in protest at the administration’s failure on currency policy, will be the GOP front runner by the end of the year.

European Politics

9/ Dominique Strauss-Kahn will resign as head of the IMF and return to France where he will quickly become the presumptive nominee of the Socialists for President.

In Ireland Fine Gael will emerge as the largest party following a first quarter general election, with Labour a close second. By the end of the year the FG-Lab govt will be deeply unpopular and Sinn Fein (who finished the election in third place) will regularly be polling 30%.

Zapatero will resign as Spanish PM.

In Germany the CDU-CSU will experience crushing defeats in regional elections leading to renewed pressure on Merkel.

Fini will emerge as Italian PM after agreeing a deal with Berlusconi whereby he steps down in return for immunity to prosecution.

Currency Wars

10/ Trade tensions will continue to deepen with tit-for-tat tariffs in place across much of the world by the end of the year.

At the start of 2012, the prevailing logic will be that the West is facing a lost decade, that Obama can’t win and that the age of globalisation is coming to an end.


14 Responses

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  1. Will M said, on January 1, 2011 at 9:09 pm

    Agree with most, but a few disagreements.

    Firstly, I think the Lib Dems have bottomed out their support, and can only head up from where they are.

    Secondly, and more importantly, I think you’re entirely wrong on the US politics one. Obama’s ratings I think go up from here, and I don’t see Huntsman resigning as US Ambassador. Though if he does it only hurts Romney’s run – it doesn’t make Huntsman the nominee.

    Also unconvinced on US employment numbers – 8.6% by Q3 seems more like it.

  2. Daniel Sutton said, on January 1, 2011 at 9:17 pm

    Why do you think the No campaign will win?

    • duncanseconomicblog said, on January 1, 2011 at 9:22 pm

      Anti-Clegg vote. Plus not detecting huge interest in the yes campaign. I’ll probably vote yes.

    • Neil Wilson said, on January 2, 2011 at 9:19 am

      People in the modern world tend to vote with their hearts not their heads. Emotions run high, whipped up by a media that knows how to manipulate that. After all they do X-Factor every year and get a number #1 out of it.

      Right-wing, authoritarian and religious views tend to be governed by lizard brain gut instinct and feeling rather than rational thought. They appeal because they connect deeply with feeling type personas.

      Unfortunately that seems to be where you need to be to get anywhere in politics hence why the Labour party has moved to a more authoritarian stance and economic policies that are literally to the right of Hitler.

      For the ‘yes’ vote on AV to win they need to generate an emotional hook, and I don’t see one. The ‘no’ vote has one – Nick Clegg is a turncoat.

      • vimothy said, on January 3, 2011 at 8:57 pm

        Don’t all the modern industrial states have economic policies literally to the right of Hitler? In the sense that they are basically variants of capitalism as opposed to corporate-fascist collectivism. I mean, opinion is clearly a fuzzy measure but it doesn’t seem obvious to me that anyone should find it surprising that Labour’s economic policies are to the right of Hitler, literally or otherwise.

        • Neil Wilson said, on January 4, 2011 at 8:19 am

          Yes they do.

          I quite like the system at Political Compass which uses two dimensions, Left/right on the economics and Authoritarian/Libertarian on the societal front.

          Their analysis of the UK parties is quite interesting – particularly the way the Labour party has moved over time.


          Everything has moved towards the right economically, but more importantly it has moved towards authoritarianism.

          Essentially from rational thought to animal reactions. Logic to emotion.

          • vimothy said, on January 4, 2011 at 10:45 pm


            I’m not a huge fan of Political Compass, TBH. What ain’t broke don’t much need fixin’, and any system in which the Nazis are left-wing is a system in which up has been converted into down and, indeed, left into right. Which is fine, of course, as long as you remember to adjust all your maps accordingly. Otherwise your new compass may lead you straight off the edge.

            Yet as Orwell reminds us, “To see what is in front of one’s nose needs a constant struggle.” Is this struggle made easier by scrambling mutual terms of reference? I suspect not. Look here: “The uncomfortable reality is that much of [the BNP’s] support comes from former Labour voters.” The explanation consistent with Political Compass’s revisionist taxonomy for the migration of Labour voters to the BNP must be that as Labour has shifted to the right, core voters have moved to other left-wing parties, in particular, the BNP.

            Weird how they’re voting BNP and not SWP though, don’t you think?

            I prefer to use “left wing” and “right wing” as they were originally intended (per the French National Assembly), and from this perspective it’s clear that the entire political structure has shifted to the left, such that there are no mainstream parties whatsoever to represent the “bigoted women” of Rochdale, or the white working class in general or in fact anyone who one hundred years ago might have been regarded as right wing. Where do the King’s men sit today—still on the right? Of course not. They don’t sit anywhere. They no longer exist.

  3. Neil Wilson said, on January 2, 2011 at 9:12 am

    Depressingly there is little to argue with those predictions Duncan.

    There is a possibility that the US may surprise to the upside. The continuation of the tax cuts and additional spending may provide sufficient stimulus to stabilise unemployment. Although given the way things have run over the last two years, it’s more likely that it’ll just pile up in the bank accounts of corporations with the Banks just converting the resulting reserves into Tsecs.

    As to the UK it’s going to be interesting how we distribute the commodity import price shock across the system and whether the BoE tries to use their interest rate lever to control cost-push inflation.

    No prediction on what the BoE is going to do I notice. What’s your thoughts on that.

    • duncanseconomicblog said, on January 2, 2011 at 11:33 am

      I (hope) we see no rise in rates in 2010. If (when) CPI hits 5% in the middle of the year though, all bets are off.

      Agree on the US.

  4. Peter Kunzmann said, on January 3, 2011 at 4:24 pm

    On number 2, why do you think we’ll see a rise in imports? Anything to do with VAT?

    • duncanseconomicblog said, on January 3, 2011 at 5:13 pm

      Not a major increase in imports – just import growth in line with the post 1979 or post 1948 average (i.e. much higher than OBR predicits), more than enough to offset much of the export growth.

  5. Luis Enrique said, on January 4, 2011 at 3:01 pm

    why so negative on the US? the latest job market news was positive:


    • duncanseconomicblog said, on January 4, 2011 at 3:13 pm

      I generally prefer to wait for non-farm monthylnumbers rather than look at the weekly numbers in the US labour market (the rate of revisions is pretty awful!). But yes, a decent number.

      But a number compatable with a stagnant rather than a strengthening labour market.

      Home prices look set to fall further in the absence of govt support, banks still broken and not supporting investment and the timing of the stimulus (in terms of effect on Q-on-Q GDP) plus I take John Ross’s worries on the falling savings rate seriously.


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