Last year's terrible track record won't stop me from making more gloomy predictions. Here's what's going to happen in 2020.
In this year’s first blog post I intend to make some predictions about important events in the coming year in the fields of economics and international relations. I performed this exercise last year and, as I found out in this post, I didn’t do very well in my predictions. Of course, that was partly because of how general my predictions were which is why I intend to make more specific predictions this time. I want to briefly preface the predictions with the caveat that I don’t claim to be an expert and will likely be wrong, and more importantly that this is mostly meant as an opportunity to improve. With that said here are my three predictions for 2020:
My first prediction is that there will not be a phase two deal between the United States and China, in fact there won’t be a meaningful trade deal at all. The qualifier of a meaningful trade deal is important as there might be more political theatre but I’m convinced that there will not be warming up of Sino-American relations regarding trade or anything else either for that matter. The reason is that it seems to me that both Washington and Beijing seem to see China as currently markedly weaker than the US but on a strong upwards trajectory power-wise, which coupled with China’s reliance on exports gives the US few incentives to cut China a deal. There will still be negotiations, but the Americans will demand too much for there to be a real meaningful trade deal. In an effort not to be as vague as my predictions for 2019 were on occasion I will define a meaningful trade deal as one which lowers tariffs for both sides on several industries by at least five percentage points. Power in international relations is always and everywhere a zero-sum game meaning that if China becomes more powerful someone else by definition becomes less powerful which makes the bilateral Sino-American relationship antagonistic, something that will be evident in trade relations in the coming year.
My second prediction is that global interest rates will fall. The global economy will likely be weaker in 2020 than in 2019 and as the global economy slows central banks across the world will feel forced to intervene with a looser monetary policy to help the domestic economies. This will be most be most dramatic in the Eurozone where the European Central Bank will extend and expand its Quantitative Easing programme to save the European (read German) economy from a recession. Whether it will work or not I won’t speculate about, however I think equity markets across the developed world will likely have a good year due to the low interest rates.
My final prediction for 2020 is that the oil prices will continue to climb, not steadily and it won’t be a linear progression, but oil prices will be higher when the year ends than they are now. Saudi Arabia and their friends in OPEC have wanted higher oil prices for a few years now since the shale oil boom took off in the US, the reason I think their efforts will finally pay off now is twofold. Firstly, as I wrote about in my beginner’s guide to oil, most of the world’s petrostates needs the price of oil to be a fair bit higher than it is currently for their budgets to make sense. Algeria and Iraq are experiencing major protests at the moment and while I’m not claiming that the protests are a direct result of low oil prices I think those governments would have much better chances of preventing or handling such movements if they had the money that a high oil price brings. In short, low oil prices make all petrostates less stable and more prone to unrest which brings uncertainty which raises oil prices. The second reason I think the oil prices will increase is that I believe the Middle East will be less stable and more prone to international crises in the coming year. Five days in to 2020 there’s already considerable tension between the United States and Iran, and with Turkey expanding, Assad trying to finish up the Syrian civil war, Russia trying to get out of the Syrian civil war, and Saudi Arabia still being bogged down in Yemen there’s plenty of potential for crises in the Middle East which tends to put pressure on the oil price.
In conclusion 2020 is in my view shaping up to be a messy year with less trade, higher oil prices, and central banks trying desperately to prevent a recession with loose monetary policy. What are your thoughts? What kind of year will 2020 be? Am I just a pessimist or will my predictions be more accurate than last year? I’d be interested to hear your thoughts. You can find me on Twitter @ipolecoblog and if you enjoyed this blog post you can read my last blog post here. Please come back next week for a new post!
Written by Karl Johansson
Cover Photo by Alina Vilchenko from Pexels