Tuesday, 18 December 2012

What does 2013 hold in store?


Who said comedy was dead?
As we get to this time of year, attention invariably focuses on the year ahead and what lies in store. It is probably simplest to start abroad, as, in an increasingly global economy, so much hinges on what happens on the international stage. Much has been said about the prospects of the US reaching agreement on the budget to avoid the “Fiscal Cliff”. I must say I agree with Mike Lenhoff’s feeling that a deal will be done, albeit that it might miss the end of year target. Too much political damage would be caused to a recalcitrant Republican movement to believe that they will wish to be seen to be the cause of the US economy lurching back into recession. Japan is an interesting situation. The result of the election will almost certainly see the return of Shinzo Abe to power, with a mandate to shake up an economy that has made little progress for more than twenty years. I can’t escape the feeling, however, that Japan has promised so much, so many times in the past and has consistently failed to deliver. Europe, by contrast, has promised so little, so often but somehow manages to do just about enough, just about in time. Mario Draghi, a nominee (in my book at least) for Individual of the Year, has done a very good job at the European Central Bank and has set in place the kind of reforms necessary to restore confidence in the region. As Mike points out, China, too, is doing everything it can to restore growth in its economy and a changing of the guard here is likely to see a reinvigoration of the country.

This background creates a more supportive backdrop, potentially, for the UK economy. That said, the expectation of the Bank of England is for another year of sluggish growth (at best) as the country grapples with austerity measures. It will be interesting to see what effect the new Governor, Mark Carney, will have when he takes over on 1st July next year. One suspects he will face a somewhat different set of challenges to those that he faced in his role as Governor of the Bank of Canada. This economic background is likely to create an environment in which interest rates remain unchanged during 2013 which should, in turn, underpin government and corporate bonds. Much, however, will turn on expectations for 2014 as the year progresses.

The political world will be, as ever, fascinating. The UK is still some way from the next General Election (which must be held by 7th May 2015), but the Independence Referendum in Scotland in 2014 may cast a shadow. The political environments in the US, China and Japan are relatively stable, but the unpredictable nature of Middle East politics is unsettling, to say the least. In Europe, Angela Merkel must go to the polls in the autumn and this will set the tone for the political scene in Germany for the next four years. Europe, however, looks to be the home of the comeback kids. Following Fran├žois Hollande’s victory in the French election, the opposition UMP party has spectacularly imploded, leading some to speculate that the scene may be set for the return of Nicolas Sarkozy. Meanwhile, Il Cavaliere, Silvio Berlusconi, has indicated that he may, after all, consider running again for the role of Italian Prime Minister - looking to replace another candidate for Individual of the Year, Mario Monti. Who said comedy was dead?

Rob Burgeman
Divisional Director

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