Will 2019 be the year outrageous predictions come true?

There are outrageous predictions out there, and I wouldn’t be surprised if at least one of them comes true.

Article updated: 3 January 2019 1:00pm Author: Michael Baxter

What will happen in 2019? I don’t recall there ever being a period of greater uncertainty— it depends on the outcome of so many unpredictable things. But there are outrageous predictions out there, and I wouldn’t be surprised if at least one of them comes true.

I nearly fell off my chair when I saw one particular headline to a report from Capital Economics. It asked: “Could the UK top the G7 growth league?” The detail revealed the problem. The answer was that the UK might top the league, it depends.

It depends, of course, on what happens with Brexit. Will we see hard Brexit, if so will there be a series of side deals to soften the exit? Will we see the Theresa May deal go ahead? Will we see a Norway type trade deal? Or, in the words of Fred Astaire and Ginger Rogers will we say: ‘Let’s call the whole thing off.’ And if you fancy being cheered up this morning, here is a link to the song.

Capital Economics actually looked at four scenarios:

  • The more extreme version of hard Brexit: a disorderly exit from the EU, it forecasts a mild recession in 2019.
  • In the event of hard Brexit but lots of side deals, softening various impacts, growth may slow from 1.3 per cent in 2018 to one per cent this year.
  • In the event that Article 50 is extended then growth would be between 1.4 and 1.7 per cent.
  • And if the Theresa May deal goes through, growth could hit 2.2 per cent this year, and 2.0 per cent in 2020. And such a growth rate may be enough for the UK to top the G7.

It made no forecasts for what might happen in the event of a Norway style trade deal, or if the UK goes down the Fred Astaire and Ginger Rogers route that I described above. But if it did, then I suspect that the markets would dance with joy like they were enacting a 1950’s musical and the economy would indeed waltz its way to top spot in the G7.

Trump

As for the US, well calling that one is almost as tough. It depends on what happens next with the US President, or indeed if he eats one of those peaches I keep hearing about, and he has problems digesting it, and he gets, as it were, impeached.

Talking of peaches

Talking of peaches, have you heard the one about Apple? It has only gone and issued its first profits warning since 2002.

Then there is Tesla; shares tumbled after the company announced worse than expected car deliveries than the markets anticipated. Actually, I find the market reaction to Tesla hard to fathom. In fact, the company delivered 90,700 vehicles in its fourth quarter. Just a few months ago, many car industry experts said that achieving those kind of numbers was impossible. When the markets react with disappointment because a company didn’t exceed an impossible target by as much as expected, then I begin to wonder whether the markets have lost all track of reality.

Outrageous predictions

In a year of such unpredictability, with markets seemingly as tight as a drum, it may be time to consider some outrageous predictions.

This is exactly what Saxo Bank did. Its list of what it called outrageous predictions, applies to possible events that it does not necessarily think are likely, merely possible, but equally, quite shocking if they occur. Here goes the list, each accompanied by a sentence or two comment from me.

  • The EU announces a debt jubilee, meaning debt forgiveness. This is not an unusual event in Europe, and post World War 2, France had 50 per cent of its debt written off and the UK 24 per cent. Is this likely? Well, I think the difference between a debt jubilee and paying off debts at a zero per cent interest rate is quite subtle. And we have moved pretty close to that already. When the UK government used the profits from QE to reduce debt, it applied something of an effective debt jubilee.
  • Global transportation tax. Well climate change needs some radical ideas; not sure global leaders are yet ready to embrace the incredibly important responsibility that climate change entails... yet.
  • Australia’s central bank announces QE. There are similarities between the Australian economy today, and the West pre 2008. Trouble is brewing.
  • A corporates credit crunch leaves Netflix open to a purchase from GE. There has been too much corporate leverage, Netflix being a case in point. A backlash against corporate credit could have a devastating effect on some companies. Not so sure that Netflix is vulnerable, its product offering has become superb. And that has to count for something.
  • Solar flare creates havoc. In 1859 a solar storm known as the Carrington Event caused very little economic damage, if any. Today, a repeat of such an event would be devastating; wiping out much of today’s infrastructure. It’s a matter of when not if, and whether we can come up with solar flare proof technology before it happens.
  • Pound reaches parity with the dollar following economic policies of Prime Minister Jeremy Corbyn. I think there is a general underestimation of how furious pro-EU Labour supporters are with Corbyn. The Labour Party is more likely to split in two than get elected.
  • Trump fires Fed chair Jerome Powell. Well he could. Not so long ago, central banks were typically controlled by governments. Even so, I would not trust a Fed run by a Trump puppet.
  • Apple buys Tesla. Well, I think it should. Apple needs innovation; if it is to ever to challenge the major auto makers, Tesla needs lots and lots of cash. Likewise it needs cash to continue it's mastery of energy storage. Not sure Apple would dare, however.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

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Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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