By Michael Baxter
So what do you think will happen in 2013?
Setting aside Galbraith’s comment about the only redeemable benefit of economic forecasting being that it makes astrology look respectable, here are some thoughts for you to ponder.
Zombies may be in the news in the summer. A new film is coming out called World War Z, starring Brad Pitt. It is about zombies. In 2012 zombies were in the business pages too. There are households, many of whom are stuck in forbearance; around 5.8 per cent of home owners, according to the FSA.
There are zombie businesses kept alive by rock bottom interest rates, and banks terrified to value their assets in accordance with what the markets think they are worth. If banks did revalue their assets in accordance with market values, and applied what’s called mark to market accounting, we could see another banking crisis. So either the markets are wrong, and banks are merely refusing to let their hysteria reflect valuations, or banks are pretty close to becoming zombies — if they are not already, that is.
Meanwhile, the poor old can is already starting to look very beaten up. On the first working day of the year, members of the US House of Representatives kicked the can down the road. They voted to raise some taxes, but delayed deciding about spending cuts for two months. Next, they have to agree on the US debt ceiling. If they don’t, the US government will have to default. They probably will, and it probably won’t, but the wire will get a visit as the US economy goes down to it, and the can will get kicked some more.
In Europe, politicians will do much the same thing — that is to say at the last minute agree to various rescue schemes, but only as temporary measures while they consider at their leisure what to do to fix underlying challenges.
They will never decide of course, but they will have lots of late night emergency meetings. The German Constitutional Court will have to decide whether various new schemes are legal under German law, and will finally announce provisional approval of the latest German backed rescue scheme, but say it needs more time to decide for sure.
So is there a word to describe US and EU governments that just delay the real decision making process, and apply sticking plasters? Well how about this word: zombies.
One prediction for the year ahead is that as World War Z is released we will see a barrage of media comment, and indeed cartoons, comparing the economy with that film.
Also in 2013, governments and central banks in the US, Japan and the UK will decide it is time to target nominal GDP rather than inflation. The result will be more QE. Sterling may come under pressure, especially against the euro, although the Bank of England may well say this is a good thing. Holiday makers won’t be too chuffed, however.
Many will forecast a return to double digit inflation, a or even hyperinflation, but in reality, QE will lead to modest rises in inflation, and by the end of 2013, despite more QE, UK inflation will be lower than at the end of 2012. (CPI Inflation was 2.7 per cent in November 2012).
On the back of QE, gold will probably do well, and oil will oscillate. But there are signs that China may be getting over its so-called soft landing, and growth may be higher in 2013. This may be enough to push up oil.
Finally, in the world of tech, LinkedIn will see profits double again as they did last year, Facebook will see its shares pick up and return to the IPO price, as the company begins to find ways to monetise its huge user base. Apple may take a knock in the smart phone business as the likes of Samsung and HTC see sales rise. But it will announce its iTV player, and this will prove to be as big a deal as when the company revealed the iPhone. Shares will surge and Apple will be the world’s first company to be valued in excess of one trillion US dollars.
Sales at Amazon will rise, as new owners of its Kindle Fire start buying more from Amazon and less from traditional retailers. Amazon will appear to be on course to become the world’s largest retailer. And finally, IBM will see its best year in terms of share price growth, for many years.
Michael Baxter, email@example.com
Editor the investment and Business news newsletter, blog.share.com and author of the Blindfolded Masochist
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