Each year in the last days of December I try to put together some thoughts about what the next year could look like. But before I present my 2010 forecasts, which will be out on 31 December, let me review my 2009 forecasts made in the last days of 2008. Comments to my 2009 forecasts are in bold.
My 2009 forecasts and their performance
- Crisis and recession.
All large industrialized countries will be in recession, with US facing the biggest output drop among large economies amid largest past excesses. Hard economic data will be very gloom for the entire 2009, but leading indicators will begin to flash a possibility of mild recovery here and there in 2010. But I do not expect a linear sequencing, there will be premature hopes and continued negative surprises, which will be reflected in major stock exchanges performance. Brace for continued rollercoaster rise, but this time around there will be both, sharp ups and downs. Global inflation will remain very low, dangerously low in some places in 2009, before it shows its ugly face again in 2010, 2011 at the latest.
In general it did materialize in 2009, with one exception, US did better in relative terms than I anticipated.
- Obama xiānsheng **(先生,which is Chinese for Mr, Sir)
In line with IMF and Paul Krugman recommendations new US administration will embark on a massive spending plan, worth much more than one trillion dollars. On the international arena we will see a major breakthrough regarding US international initiatives. US will no longer act and the global policeman, or global policy agenda setter. It will become global policy agenda facilitator, bringing new global players together, and most notably China. There will be few dangerous places in the world in 2009, think of Palestine and Jewish-Arab conflict, or India-Pakistan affair. This sets the stage for more intense terrorist activities, which may constrain US president foreign policy options.
This was largely correct, with G20 meetings becoming most important global political event. Although recent collapse of the Copenhagen climate summit casts some doubts on whether US will keep its new policy course.
With global growth faltering politicians in many countries will embark on protectionist path (import tariff on cars in Russia, broad import tariffs in Ukraine, import tariffs on steel in India already imposed in 2008). This will be very dangerous and can lead to a prolonged global recession. Combating protectionism will require major international diplomatic effort and understanding that free trade is one of the most important global public goods.
Partly correct. Many countries resorted to different forms of protectionism, but at the end of the day we avoided the worst, and most measures were kept within WTO scope of flexibility.
- New Bretton Woods / New G??
2009 will possibly become a milestone in forming new global governance structure, although the process will be long and last years if not a full decade. IMF will not be endorsed as a global stability supervisor unless major governance changes take place and BRIC countries receive more voting power. It is also unsustainable to have all head offices (IMF and World Bank) in Washington. With videoconferencing broadly available there is now room to relocate IMF/WB head offices to Europe and Asia. Such a move could indeed increase the odds of transforming outdated Bretton Woods governance model into a new one, that reflects 21st century power structure. Consequently the old G7/G8 group should be replaced by new G8, with European Union having one seat. First informal meetings in such company may already take place in 2009.
Good forecast, new G20 group was created, but it fell short of my suggestions that the EU or at least Eurozone should be represented by one seat. IMF/WB reform was accelerated as predicted.
In 2009 dollar will begin its long term journey, once travelled by the British pound in early 20th century.
Dollar did fall against euro in 2009, but the drop was somewhat smaller than I anticipated. However the was a deluge of articles in 2009 predicting dollar decline amid fiscal misery. So the trip has begun indeed, but with a small step in 2009.
- Climate change
2008 was a relatively good year, with relatively few climate disasters (UPDATE: according to Munich Re report 2008 was a terrible year regarding natural catastrophes, taking away some 220,000 lives, despite the fall in overall number of disasters by 22 percent to 750). However there is strong rising long-term trend of climate disasters, and if 2009 is just an average year we will see much more adverse climate than in 2008. This will speed up climate change politics, with US joining EU efforts to reduce greenhouse gasses emissions. Carbon emission rights trading will become the next big market and despite global investment recession, investments in renewable energy will go up and then will soar in 2010 with returning high energy prices.
Poor forecast. Copenhagen summit yielded no tangible agreement, but many countries made emissions reduction commitments. So far carbon trading is not the next big thing, it will come later. The forecast was premature.
- Commodity prices and Russia
2009 will be a recession year so commodity prices will remain low, reducing investment in traditional energy (oil in particular). With global energy demand recovering in 2010 this capacity constraints will begin to bite and oil prices will rise, possibly sharply. I think that this rise will take place in 2010, if recession is longer than in 2011. In such scenario Russia will continue to experience capital flight in 2009 and one cannot rule out that it will lose most of its 450bn currency reserves and will need IMF help again (or a loan from China?). 1998 déjà vu.
Good forecast, commodity process remained low for most of the year, Russia did experience capital flight and very deep recession. However foreign exchange reserves loss was smaller than I expected, and oil price rebound definitely helped.
- European Union / Euroland
Scary times. With Germany shrinking as much as 3 percent in some scenarios European Union and Euroland will face a once in a lifetime test, a survival test when it comes to European solidarity. While Iceland, Denmark and even UK sends smoke signals to join using shortcuts, the real question is how European politicians will behave when truly hard times come, when deep recession and unemployment bite. We have already seen Berlusconi “buy Italian” campaign. 2009 will witness Mr Populist vs. Mr Economist, 12-round, heavyweight fight.
Good forecast, with Greece downgraded EMU fall apart talks resurfaced. UK and France received credit downgrade warnings, public debt is going though the roof.
- Poland’s strategy
By now ruling politicians understood that economic misery will last longer than one year and that 2010 may be more difficult than 2009. Prime Minister Tusk will run for president in 2010, so economic gloom may severely inhibit his chances to replace Kaczynski at country top post. It bodes well for government anti-crisis activity, as always when political incentives are right then economic and reform miracles can happen. So expect rapid implementation of government anti-crisis plan, with a lot of help offered for firms which will be deprived from access to bank credit. However, with fiscal picture rapidly deteriorating Poland will likely delay its decision to join ERM2.
Mixed forecast. Government implemented a lot of … PR measures, and very little in reality. So called savings were shifts from budget to off-budget funds. Various programs (guarantees or labor flexibility enhancers) were not used at all by firms as too expensive or too rigid. Unemployment will continue to rise in 2010, but growth will inch up.
- Poland’s growth outlook
My central forecast is 2- growth in 2009, and 1+ growth in 2010, conditional on government acting quickly and decisively. Exports and investments will decline in 2009, and private consumption will slow, despite tax cuts. Consequently government spending will have to go up, geared towards building hard and knowledge infrastructure, very needed and long overdue investment in the country future. If done well may keep Tusk as prime candidate for president, if done badly may cost him political future.
Good forecast. 2009 growth will likely by 1.6-1.7, and government did a good job spending EU funds on infrastructure. Also government spending went up like hell, from 42% of GDP in 2008 to expected almost 48% of GDP in 2010. I will revise my 2010 growth outlook upwards.
- Poland’s politics in 2009
While European Parliament elections in 2009 (4-7 June) will be a political non-event in Poland, I see a large likelihood that some important political processes will begin in 2009 and accelerate in 2010 before presidential elections. Firstly, the young generation (people who started their adult professional life after 1989) will have a stronger voice in Polish politics. Will they form their own party and score well in 2010 (president elections) and 2011 (parliament elections), it is still a tough call. But three things indicate that it can happen: (1) economic gloom and doom in 2010 will make people unhappy about the ruling party; (2) Obama way of winning, using internet and social networking shows that young, open minded, globally-minded generation can and should replace older layer, which is busy fighting yesterday wars that nobody understands. Thirdly look at the following questions. Why after 20 years of reforms Poland is a laggard in global competiveness ranking, it fell last year from 68th to 76th place. Why after 20 years of reforms we still do have decent roads and railway tracks? Why Poland scientific output places us next to Albania at times when knowledge and innovation determine country future standard of living. Why at times when internet access is key to success, Poland has the highest digital exclusion rates in Europe? The why list is very, very long.
Who can do it? One obvious candidate to lead young generation is Rafal Dutkiewicz, president of Wroclaw. Lech Kaczynski has catapulted himself from Warsaw president to Poland’s top job, so it can be done. But Polska XXI was a false start, new opening cannot be done with old pricks. So unless Dutkiewicz rethinks his strategy, he is no challenge to Tusk.
Assessing this forecast is tough. European Parliament elections were non-event. We have not seen young generation forming their own voice in 2009, other political initiatives (Polska XXI, Polska Plus, others) proved non-events, and Rafal Dutkiewicz rightly pulled back. Will Andrzej Olechowski convince young generation to back his vision of presidency, it is too early to judge. Given very poor quality of economic and financial policy in Poland (with notable exception of EU funds spending) I do hope that new generation of leaders will emerge in 2010, but honestly I do not see the candidates yet.