As 2017 comes to a close, many people are focusing on the year ahead. The last 12 months present questions about the global economy, interest rates, AI and the impact of bitcoin and blockchain.
To get a clearer picture of what we can expect to see in 2018, we have drawn upon the collective experience and wisdom of seven of our leading economics speakers. These men and women represent some of the most stimulating and thought-provoking minds in their field today.
We asked, ‘what do you think is going to happen in the global economy in 2018?’
Many predicted that we will see further growth, especially in China, Japan and India (see Garelli, Bootle, Scott, Smith and Khanna) but also in Europe and the USA (but not without its price).
A couple offered their predictions on interest rates (Bootle and Garelli) whilst others focused on issues such as FinTech (Skinner) and populism (Hertz).
Read their full comments below for a detailed view of what’s going to happen in 2018.
One of the world’s most influential thinkers – An economist who advises political and business leaders all over the world, Noreena Hertz’s insights on economic, geopolitical, societal and technological trends have proved consistently accurate and her ability to offer realistic predictions have made her a popular speaker and author. She has written several global bestsellers all of which have been met with critical acclaim and has given Keynote Speeches at TED, The World Economic Forum in Davos and Google Zeitgeist as well as for leading corporations.
The Observer has named her as “one of the world’s leading thinkers”, Vogue has named her “one of the world’s most inspiring women.” Her thinking served as the inspiration for Bono’s Product (Red). She has featured as the Cover Story of Newsweek.
“2018 is the year that populism will significantly impact big business and the global economy.
Over the past couple of years, populism’s appeal has accelerated. It is today arguably at its highest level since the 1930s. But what’s important to note is that it’s not only on the rise amongst extremist parties it is increasingly infiltrating and influencing traditional politics too. It is pushing conservatives further to the right and liberals further to the left and changing the overall mood music.
“The continued rise of populism is bad for global business…”
Why this matters for business, is because populism is challenging the fundamental rules of the game. Since the end of the Cold War the rules of the game – free markets, free trade, globalisation and capitalism –were clear and stable. This is now at risk. Today talk of deportation of immigrants, anti-globalisation, trade barriers and trade wars is increasing amongst political parties with significant clout and constituencies, including several already in power. Putin, Duterte, Orban, Modi, and el-Sisi are all self-avowed anti-globalists… as of course is Donald Trump – who may not be delivering on his populist agenda when it comes to taxes, but when it comes to trade, so far is.
With numerous sectors, businesses and regions in Trump’s sight – from Chinese tinfoil to Canadian fighter jets, from Canada and Mexico to China and the EU – Trump is making fighting talk on trade… But it’s a fight with no winners as history teaches us all too well. If the US were, say, to pull out of NAFTA, a global economy that currently looks in reasonable shape would quickly look less reasonable.
The continued rise of populism is bad for global business for another reason; it has big business in its sight.
From rising anti-corporate sentiment within the Tea Party in the US to Jeremy Corbyn’s (leader of the UK’s Labour party) agenda of nationalisation, union power and higher taxes, populists of right and left have big business firmly in their aim.
Again what’s really important to understand is that anti-corporate sentiment is no longer confined to the margins of politics. Would the British government have announced caps on gas and electricity bills in 2017 were it not for the populist points to be scored? I very much doubt it. Would the EU have imposed big fines on Apple and Google absent the populist undertones – I’m not sure.
I believe that we will see, over the coming year, increased attacks on the Tech Giants in the US by Democrats and Republicans alike and across party lines in Europe too. Which other industries will be in the populists’ line of fire? The list is long and growing. Which is why how to counter rising anti-corporate sentiment needs to be on any global corporation’s agenda in 2018.”
Stephane Garelli is a world authority on competitiveness, closely connected to the world of business. Former Managing Director of the World Economic Forum, he is a Professor of Competitiveness at IMD, one of the world’s leading business school and the founder of the IMD World Competitiveness Center. He is also a professor at the University of Lausanne, Switzerland and serves on several boards. Stéphane Garelli is a world-renowned economist and a highly sought-after speaker with a gift for distilling complex economic and business issues.
“2018 will be a time to look at the world differently: we shall benefit from the first synchronized economic recovery in over 10 years. Central banks will phase out printing money, but interest rates will largely remain flat. Cash and liquidity will continue to abound, especially in sovereign wealth funds, financial institutions and companies. It will fuel more M&A and the restructuring of large players in several sectors.
Meanwhile, more global brands will arise, mainly from emerging economies. China will continue to acquire companies to secure an international presence. Large technology companies increase their dominant position and will disrupt many sectors; banking, retail, cloud computing, watches, media, automotive, etc.
Taxation of global companies will remain a hot issue in the US and the OECD region. Reforms will emphasize moving toward a territorial approach, more transparency and a harmonization of practices. Taxation rates will remain a prerogative of individual states and competition will prevail.
In 2018, a higher level of uncertainty will stem from US policies, the Brexit negotiation and the changing mindset of the Millennials. Resilience, speed and openness to new business models is thus the name of the game to be successful in this brave new world.”
A noted City of London economist and economic advisor to the British government. Roger writes a weekly column in the Telegraph newspaper and has several books to his name including Making a Success of Brexit and Reforming the EU and The Real Sterling Crisis: Why the UK Needs a Policy to Keep the Exchange Rate Down, co-authored with John Mills.
Roger says “Economists need to be prepared to be wrong. Indeed, some of them, unfortunately, need to prepare themselves for nothing else. Perhaps the greatest surprise about the world economy in 2017 has been its general strength and resilience. A year ago most forecasters were still in gloom and doom mode.
By contrast, in my column in the Daily Telegraph, published on 16th January 2017, I wrote: “The upshot of all of this is that world growth this year is set to be higher than last year. Not only that, but it may well be a good deal stronger than almost anyone expects. Of course, in the world of forecasting, you have to be prepared for surprises. Over the last few years, we have all been exceedingly well prepared for downside surprises. What I am about to say is decidedly risky but I will say it nevertheless: I have a hunch that we now need to be prepared for surprises on the upside”.
“I expect central banks… to become increasingly worried that they have kept interest rates too low for too long…”
I realise that you are not supposed to blow your own trumpet but I reckon that wasn’t bad. I reckon that 2018 could see a continuation of the same trends. Of course, a sudden geopolitical shock could upset the applecart but the really striking thing at the moment is the breadth of the global recovery. Not only has growth stabilised in China and looks robust in the US but even Japan is doing quite well and the euro-zone is growing quite strongly. After a steep downturn, Russia is now recovering. In these circumstances, despite Brexit worries, I expect the UK economy to accelerate in 2018.
The most important implications are for interest rates. I expect central banks, including the Bank of England, to become increasingly worried that they have kept interest rates too low for too long and to take gradual steps to reverse this. I do not expect a sudden jump in interest rates but I do anticipate interest rates rising further and faster than the financial markets – and most consumers and mortgage-holders – currently expect.”
Professor of Economics at London Business School, Andrew is known for his focus on the big broad factors that transform the world around us. He is an economics expert who focuses on the latest financial and macro global trends to draw out the corporate and market implications that will define the coming decades.
“Most of the critical influences on the economy and markets in 2018 won’t be foreseen by commentators in their annual forward-looking assessment and most of what the commentators predict won’t occur.
On that basis, 2018 will see continued good news on the economic front with Europe and Japan surprising on the upside.
Inflation will start to rise more strongly than central banks expect, leading to the prospect of a more rapid increase in interest rates than is expected. Strong global growth, low levels of unemployment and disappointing productivity growth will combine to push up inflation and inflation expectations.
Bitcoin will be revealed as a bubble. Bitcoin should have a positive value as it fulfils a role (although one that will concern regulators) but its wild swings in value make it unsuitable for a currency, the threat of regulation will constrain its upside as will increasing talk of government-backed substitutes.
“The Brexiteers won’t get what they want from the EU and the Remainers won’t like what’s promised.”
Politics will provide turbulence. Growing political and regulatory focus on the rapid growth, monopoly position and information advantage of Facebook, Google and the like will begin to impact on their valuations. I am often asked about Brexit. All things are possible, no outturn to be ruled out. As the deadline approaches, the ability of Theresa May to keep all sides around the table with intentions and deliberately vague promises and statements will become less and less leading to great political turbulence.
The Brexiteers won’t get what they want from the EU and the Remainers won’t like what’s promised. As the endgame approaches expect frequent shifts in what looks like the most likely way forward.”
Recognised as “one of the most brilliant minds in banking” by The Financial Brand, Chris Skinner is an independent commentator on the financial markets and fintech. He is the author of the best-selling books Digital Bank and ValueWeb. He works full-time as the Chief Executive of the think tank Balatro, as well as being the Chairman of the Financial Services Club and a co-founder of the website Shaping Tomorrow.
“The three big things for 2018 from a FinTech viewpoint will be:
Getting down to business with Artificial Intelligence (AI): several of the large banks like JPMorgan and UBS were doing interesting things with AI in 2017, but I think this will be a lot more pervasive and recognised across all banks in 2018. This is primarily for compliance and risk, as AI can develop and apply complex rules across all business processes in real-time, and when most banks have 1 in 3 staff checking compliance, it makes absolute sense to replace them with learning software.
Rationalising and cleansing core data structures: many banks have built their core operations on fragmented systems aligned to products. This has distributed customer data across multiple platforms, and banks recognise that they cannot use AI effectively on data spread across the business. As a result, many will develop strategies for building an Enterprise Data Architecture in 2018 which rationalises and cleanses their fragmented data stores.
Continuing the digital drive: many banks are waking up to more and more challenges in digitalising their operations, and this will be even more pressured in 2018 thanks to the arrival of Open APIs under the Payment Services Directive 2 (PSD2) and Open Banking in the UK in January. The open sourcing of financial services has been bubbling for a decade, and now that regulations are forcing this onto the large institutions, 2018 will be a big year for doing digital properly and becoming an Open Bank.”
An award-winning author, journalist and speaker who won the ‘Economics Commentator Award’ in 2013, David Smith has been the Economics Editor of the Sunday Times since 1989. He is gifted in his ability to present complex economic issues in a straightforward manner.
“The outlook for the world economy in 2018 is upbeat and the buzzword will be “normalisation”. Global economic growth should pick up further and confirm that this is the strongest sustained period of growth since the financial crisis. Essential to the 2018 outlook is that the world is firing on all cylinders. Emerging markets such as China and India continue to record good growth, while prospects in America – boosted by the Trump tax cuts – and Europe are better than for some time.
The European upturn, with some surveys reporting the strongest growth for nearly two decades, is fascinating. It has come after years in which the eurozone appeared to be teetering on the edge of permanent recession, and it has momentum. Core EU economies such as France, Germany and Italy are growing well. Most encouraging is that the growth is well spread, and takes in the economies that had to be rescued during the eurozone crisis, including Ireland and even Greece.
Normalisation is the buzzword because that is what central banks will be seeking to do; moving away from the emergency policies they have adopted since the crisis. In the case of the Federal Reserve in America that means further hikes in interest rates. The European Central Bank will end its quantitative easing (QE).
What about Britain? The strength of the global economy will limit Britain’s weakness. But Brexit uncertainty and the squeeze on household incomes will mean that Britain does not join the growth party, unusually suffering weak growth against a buoyant global backdrop. Brexit means Brexit but we will only really find out what Brexit means during 2018. My hunch is that a transitional deal which keeps us in the EU in all but name could stretch for some years. Some would call that limbo, though it has to be better than crashing out without a deal.”
A leading figure in the next generation of global affairs strategists and geopolitical experts, Parag travels the globe giving executive briefings to government leaders and major corporations on global trends and economic master planning.
Parag believes that, in 2018, we should expect to see further difficulties unfold for the United Kingdom and the United States with even more protracted haggling and debating over mandates and exit agreements coupled with further difficulties in trade relationships with Russia and the Middle East. At the same time, we are going to see positive grown in Asia for the economies of China, India and ASEAN.