Predictions for 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):
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.
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.
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.
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.
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.
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.