As time slips into the future and draws a close on 2017 it is that time of year when pundits are again crystal ball gazing the main economic events forecasts for 2018. Darren Winters rounds up the main economic event forecasts for 2018.
Predicting the future is a fool’s errand but let’s give it a go anyway.
Goldman Sachs recently released their 16-page global economic analyst report with a catchy phrase “as good as it gets.”
Perhaps it can’t get worse for Goldman the world’s largest investment bank has a track record of making a balls up of forecasting main events and being a tad over-optimistic on their economic outlook.
So given the laws of probability Goldman is due to get it right.
Here are my skeptical main economic event forecasts for 2018 scribbled on the back of a paper napkin alongside Goldman’s main event global economic outlook “As good as it gets“.
1. Higher Global economic growth
Goldman’s global GDP forecast for 2018 is 4.0%, up from 3.7% in 2017. Let’s hope this bullish global economic outlook is good because corporate earnings need to catch up with record high stock valuations, alternatively, the correction (central bank permitting) could be harder.
But Goldman’s main economic event forecasts for 2018 for higher global economic growth is based on spare capacity diminishing which doesn’t reconcile with the retail apocalypse of 2017 and dismal auto sales in the world’s largest consumer economy, the US. An obvious question follows; how could “spare capacity be diminishing rapidly—and already exhausted in a number of advanced economies, including the US”?
Moreover, why then is the inflation rate so low (according to the official data)? If Goldman’s rosy picture of the economy is true then why have wages been stagnating (declining in real terms) for almost a decade?
Goldman is peddling the view that buoyant demand is being met by “diminishing spare capacity, rather than ramping up output” which is why the inflation rate is low and wage growth is slow, according to the “good as it gets report”. But that contradicts the reality. Auto sales shrank (in Spring the best time for auto sales) and inventories actually grew.
2. Higher inflation
Likely to be the main event forecast in 2018. I agree with the report that inflation is likely to occupy the business headlines in 2018 but for different reasons.
Inflation in 2018 is unlikely to be caused by factories ramping up output to replenish diminishing inventories due to healthy demand in the economy. Instead, inflation is likely to become problematic due to monetary stresses caused by the central bank’s extraordinary monetary easing policies over the last 8 years. So higher inflation could be caused by a devaluation of the fiat currency. Input costs could rise as supplies attempt to recuperate their purchasing power.
In other words, I see cost-push inflation rather than demand pull inflation in 2018.
The true inflation rate (official) will continue to be cooked in 2018
3. Faster Fed tightening
Could be another main economic event forecasts for 2018 and that is likely to have a bigger adverse impact on emerging economies
4. The Taper Tantrums
The Taper Tanrums of 2013 could be another main economic event forecasts for 2018.
Faster Fed tightening means that the central bank will withdraw liquidity from the market which could also cause investors to panic sell their positions.
5. A year of geopolitical events
Where last year events reach a climax is also likely to dominate the main economic event forecasts for 2018
Here are the main ones;
Risk of military conflict on the Korean peninsula.
General Mattis (nickname mad dog) recently warned that “storm clouds are gathering over the Korean Peninsula..”
North Korea continues to bolster its nuclear arsenal and has called the latest United Nations sanctions against it “an act or war“.
War drums are beating In Europe too. The Trump’s administrations decision to supply lethal weapons (including tank busting RPG Javelins to Ukraine is likely to change the battlefield dynamics and derail the process of peaceful settlement in Ukraine.
Russian President Vladimir Putin has warned US assistance would escalate. The conflict fighting in the Donbass have intensified in recent weeks.
Whatsmore, four-star Gen. Robert Neller sees a “big ass fight” in the future
During a meeting, this week with the Marine Corps force stationed in Norway Gen. Neller, told Marines that war could be looming and that his command may soon adjust its deployments to meet rising threats.]
“I hope I’m wrong, but there’s a war coming,” Neller said, according to Military.com. “You’re in a fight here, an informational fight, a political fight, by your presence.”
Middle East- Trump’s US administration is considered to be the most pro-zionist president in US history, it is zealously pro-Israel which was underscored by Trump’s announcement that the US recognizes Jerusalem as Israel’s capital. This is rubbing up Arab partners, allies in Europe and beyond the wrong way.
Moreover, it is very likely to increase conflict and destabilize the region further in 2018 and could even be a catalyst for a regional war.
6. Other political risks
Include Italian elections NAFTA.
7. Higher oil prices
(due to geopolitical uncertainties in the middle east) adding to cost push inflation
8. Tougher than expected final Brexit negotiation
Another main event forecast for 2018.
9. Cryptocurrencies goes mainstream
Becomes part of the central bank’s reserves the Fedcoin could yet again be another main economic event forecasts for 2018
10. Blockchain technology
Likely to be another main economic event forecasts for 2018 too.
So, there you have it, Darren Winters round up of the main economic event forecasts for 2018. Learn Three of Darren’s Best Investment Strategies to keep ahead in the investment game at the start of 2018.