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?
iJobs Job Widget
iJobs General

Austen Lloyd: Commercial Property Solicitor - Exeter

Excellent Salary: Austen Lloyd: EXETER - A great new opportunity with real pot...

Austen Lloyd: Senior Private Client Solicitor - Exeter

Excellent Salary: Austen Lloyd: EXETER - An outstanding senior opportunity for...

Sauce Recruitment: Retail Planning Manager - Home Entertainment UK

salary equal to £40K pro-rata: Sauce Recruitment: Are you available to start a...

Ashdown Group: Front-End Developer - London - up to £40,000

£35000 - £40000 per annum: Ashdown Group: Creative Front-End Developer - Claph...

Day In a Page

Read Next
 

Errors & Omissions: When is a baroness not a baroness? Titles still cause confusion

Guy Keleny
 

CPAC 2015: What I learnt from the US — and what the US could learn from Ukip

Nigel Farage
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower