The World in 2013: the people, themes, trends and problems that will define our global economy

Our Chief Economics Commentator says that while many economists make wrong predictions, there is value in trying to identify future patterns. He has a go below

Share
Related Topics

It is that time of the year again when the pundits give their predictions for 2013. Their forecasts have, unsurprisingly, been less than stellar in their accuracy both for what might happen to various economies and especially what will happen on the financial markets. But the exercise is a useful one, at least as far as the economics are concerned, for they help clarify our ideas about general trends that seem likely to persist and throw up some “what ifs?” that might derail things.

Rather than trudge through them, it might be helpful to identify the big themes. Of these, the main one is of a gradually improving world economy, marred by a number of specific threats. The good news is general, the bad particular.

You can find this in a number of official forecasts, including those of the OECD and our own Office for Budget Responsibility. Both recently downgraded their outlook from earlier this year, but both still expect things to be picking up as we move through 2013. This is echoed in private-sector forecasts, such as those from Goldman Sachs, JP Morgan, and ING Bank, all of which envisage growth across the developed world gathering pace in the second half of 2013 and then increasing further in 2014.

There are, however, two barriers to growth. One is the US fiscal cliff (a matter for Congress, pictured above), the other internal tensions in the eurozone. On the first, the good news is that we will soon know the likely outcome. Even if there is no deal before the end of the year when the fiscal tightening is to begin, there is likely to be some accommodation soon afterwards. Put it this way: by Easter, we will know where we are, the issue being how swiftly the US might tighten policy, not whether or not it will do so.

The eurozone issues are much less likely to be resolved. The past few weeks have demonstrated the scale of the tensions. Thanks to the skilful way in which Mario Draghi has played his hand at the European Central Bank, the rate of interest on Spanish and Italian bonds dropped sharply. The ECB only had to say it was prepared to buy government bonds for the required effect. But the advantage gained was fragile. All it needed was the prospect of Silvio Berlusconi’s return as prime minister and the markets plunged.

Realistically, the eurozone will be a drag on global growth next year. The OECD thinks it will contract by 0.1 per cent, while the mid-point of the ECB staff projections is a contraction of 0.3 per cent. But while the eurozone is about 18 per cent of the world economy, it is only 18 per cent. Recession in Europe does not condemn the rest of the world to recession, too.

If the forecasters are right and the second half of 2013 is better than the first, the task of the financial markets will be to look beyond the current valley. That prospect – if not of sunlit uplands, at least not more gloomy valley – has been sustaining share prices. It depends  which market and which measure you take, but the UK all-share index is now within 10 per cent of its peak in October 2007. JP Morgan Asset Management ponders whether 2013 will be the first “post-crisis year” for markets and that seems a rather good way of looking at it. Crises by definition cannot go on for long, but the recovery from the last one does seem utterly interminable.

If this is right and 2013 becomes the first year when equity markets are more or less back to normal, there will be one most abnormal issue to be resolved. That is the relationship between bonds and equities. At present, bond yields are the lowest they have ever been, yes ever. No one believes this can last, nor will it.

Why everyone wants to come to Britain

The surge of UK inward migration in the past decade, as shown in the new census, is astounding: the largest the country has ever experienced in absolute numbers, but also proportionate to population – greater even than the Huguenot arrival after the revocation of the Edict of Nantes in 1685. The surge has been driven principally by economics, but why?

We have to wait for economists to crunch the data, but intuitively I think there are three separate forces at work. The first is globalisation. Any enterprise seeking to take advantage of the rebalancing of the world economy needs an overseas hub, and London and South-east England are a good place to start. So a US company wanting access to the European time zone could choose anywhere in the eurozone, but the UK is more familiar.

The second is EU expansion, with the UK giving new EU citizens access to an English-speaking job market, the strongest job market in Europe. That leads to the third, the combination of language and culture. Within the old developed world the Anglosphere is becoming relatively more important. Countries where English is the mother tongue or widely spoken have been growing faster than those where it is not. The UK is an easy entry point.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
iJobs Job Widget
iJobs General

Guru Careers: Financial Director / FD / Senior Finance Manager

Up to 70k DOE: Guru Careers: We are seeking an experienced Financial Director ...

Recruitment Genius: Sales Executive

Negotiable: Recruitment Genius: This company has been manufacturing high quali...

Recruitment Genius: Telesales Executive - OTE £35,000+

£16000 - £35000 per annum: Recruitment Genius: This company is the fairest onl...

Recruitment Genius: Production Planner

£18000 - £20000 per annum: Recruitment Genius: A Production Planner is require...

Day In a Page

Read Next
 

No more big characters or Tory clowns like Boris Johnson. London desperately needs a boring mayor

Rachel Holdsworth
Cilla Black lived her life in front of the lens, whether on television or her earlier pop career  

Cilla Black death: A sad farewell to the singer who gave us a 'lorra, lorra laughs'

Gerard Gilbert
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen