So here is my look forward to 2013. What will the year bring, and how much salt do you need to pinch before taking any predictions seriously?
Greek crisis avoided. Greece hits the buffers again, austerity proves too much, the penny finally drops that the social disconnect that austerity is creating threatens to see the army return as Greece’s government. Some say Greece needs to be allowed to default and it needs more money, but others say no. How many more chances must Greece have? From these apparently unresolvable differences, the IMF and Eurozone – led by Germany and the ECB – work all night, and then again the next night. Finally, they agree. At least they agree that can’t really agree, and that what they really need is another meeting. But they do come up with a temporary fix. Greece is saved, the markets sigh with relief and go out and buy, and we say goodbye to a little bit of common sense.
Meanwhile the German constitutional court meets to decide whether the latest plan is legal under German law. After the media has lots of pictures of Germany judges in red robes it is finally decided that the scheme is possibly legal, and that a much fuller enquiry is required before a final decision is made. The date for the enquiry to be completed is set for 2014.
Meanwhile, the IMF and OECD and Central Banks, and organisations such as the OBR, revise their growth projections. It turns out that their forecasts for 2013, 2014 and 2015 were way too optimistic. But never fear, they all agree that by 2016 things will be back to normal.
As for inflation, it does not fall as quickly as anticipated. But we are told this is down to one-offs, and that in 2014 it will fall below the Bank of England’s target. A report is published showing how wages are lagging behind inflation, and how a sustainable recovery cannot occur until real wages rise. Bank of England’s MPC member Andrew Sentance warns that we must not loosen our grip on inflation. But ex MPC man Adam Posen accuses the MPC of being asleep at the wheel. “The MPC is fighting ghosts, and demons that don’t exist,” he said.
Mark Carney finally steps into Mervyn King’s shoes. “Business as usual,” he says, “our main focus is to keep a lid on inflation.” However, after lengthy meetings with George Osborne, the Bank of England target is changed. The new target is nominal growth in GDP of 5 per cent, that’s 5 per cent without allowing for inflation. It turns out that the UK only looks like growing at 0.5 per cent in 2013,which means the Bank has to target inflation of 4.5 per cent. Ros Altmann of Saga accuses the Bank of England of destroying the hopes of pensioners. But in his response, Mr Carney says that without the bank’s policies equity values would have crashed, and pension funds would be worth a good deal less. A report is published saying that the key to recovery lies in inflation falling, so that wage increases can outstrip inflation. However, although inflation stays at the same kind of levels seen in 2012, it does not rise further, and the target for nominal GDP is not met.
In June a film called World War Z about zombies, and starring Brad Pitt is released. (I am not making this up; such a film is indeed scheduled for release in June.) However, media reports focus on zombies in the economy; on households in mortgage forbearance; banks that need to adopt a difference means of measuring asset values, and companies that are being kept alive by near zero interest rates. An image does the rounds on the Internet and becomes the most talked about photo of the summer. It is taken from World War Z but is airbrushed. The picture of Brad Pitt is replaced by one of Mark Carney, and in the background you see George Osborne, Danny Alexander, David Cameron and Nick Clegg disguised as zombies.
Sell in May and go away proclaim the headlines in May after markets see a sell-off. But some say this is no spring time madness, rather we are paying the price for economic madness. Yet by St Leger’s day in September, markets have recovered lost ground, and the FTSE 100 finishes the year within 5 points of the level at which it started the year.
Throughout the year, Republicans accuse Obama of destroying the US economy. They say that taxes are killing the US economy for good. In an obscure report, which no one reads, it is pointed out that US taxes are in fact close to a post war low, and that during the 25 years after World War II when the US enjoyed its fastest growth rate ever, taxes were much higher.
On December 31 thought for the day runs an article looking at what 2014 has in store. The IMF will downgrade its forecasts for 2016, but we will be told things will be back to normal in 2017. The euro leaders will agree – after working all night – that they need to meet again to discuss a sustainable package for Greece.
So 2013 will be a lot like 2012 really other than the UK will come close to leaving the EU. And another difference: 2013 will see a couple of technology announcements that will amaze the world. (Watch out for Apple’s iTV player, this will quieten the Apple cynics for a couple of months and Apple’s market cap will approach US$1 trillion, before falling back )
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employeeshese views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees