Four days into 2016, you’ve no doubt read numerous “my predictions for the new year” columns. Read mine anyway – as some the economic viewpoints below will differ from those you’ve read elsewhere.
Starting on a consensual note, I agree with Christine Lagarde, the Managing Director of the International Monetary Fund, when she said last week that the stuttering global recovery will continue to be “disappointing” in 2016.
George Osborne is in “I told you so” mode. Much to the Chancellor’s satisfaction, the International Monetary Fund has just upgraded its UK growth forecast for 2014 to 2.9pc – suggesting Britain will this year grow faster than any other G7 economy.
Just twelve months ago, with the UK in danger of triple-dip recession, the IMF reprimanded Osborne for “playing with fire”, urging him to abandon attempts to consolidate Britain’s public finances and speed up government spending instead.
So the UK has dodged the dreaded “triple-dip”. While British GDP fell 0.3pc during the final quarter of 2012, last week came news that our national income increased 0.3pc during the first three months of this year. That meant we avoided two successive quarters of contraction – the standard definition of “recession” and a state this country has already endured twice since the credit crunch was sparked in 2008.
A “triple-dip”, the UK’s first in modern times, would have driven some very nasty headlines for George Osborne. For now, the Chancellor is no doubt allowing himself a sigh of relief. He will be more than aware, though, that for all his “healing” rhetoric, the UK economy remains extremely fragile.
“Today the problem is solved,” declared French President Nicolas Sarkozy just five weeks ago. “How happy I am a solution to the Greek crisis, which has weighed on the economic and financial situation in Europe and the world for months, has been found”.
Just when you hoped it really was “solved”, the “eurozone crisis” has roared back onto the global agenda. Like a dripping tap, a lingering bad smell, the fundamental contradictions at the heart of monetary union can be blanked-out for a while but refuse to go away. The busted banks, the grotesque indebtedness, the inherent contradictions – in recent days they’ve all burst back into view.
A couple of weeks ago, I sat on the speakers’ podium during the opening panel of the Euromoney Bond Investors’ Congress in London. Together with leading industry experts, including senior ratings agencies officials, we engaged in a detailed discussion of the contentious aspects of the Greek debt debacle and the fate of the eurozone.
The audience was “top drawer”, the room packed with 500 of the world’s biggest bond market participants, the combined assets under management measured in the trillions of dollars. “Who thinks the upcoming Greek bail-out will be the last, drawing a line under the eurozone’s sovereign debt crisis?” asked the senior Euromoney staffer chairing the panel. “Put your hands up”.
Global investor sentiment is now not only split down the middle, but the split is getting deeper and wider. The optimists and pessimists are further apart than ever. Those who insist “the worst is behind us” are clashing with those who fear we could face another big lurch. I’ve noticed lately that such forecast polarization is often apparent even within individuals. Seasoned financial professionals flit from bullish to bearish, from “risk on” to “risk off”, sometimes within the same conversation. There is profound uncertainty, with recent share price rises seeming to compound the sense of confusion, rather than providing “relief”.
The outlook for the world economy – at least the Western world – seems grim. The International Monetary Fund’s newly updated World Economic Outlook says global growth will be significantly weaker than previously thought, with the eurozone as a whole likely to go into recession, even if another “Lehman moment” is avoided.