2018 THE YEAR AHEAD – Crystal Ball by Bart Walters

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Well, it’s that time of year again. It’s when we citizens of Earth gaze into the crystal ball and try to figure out what the next twelve months will bring us in terms of health, wealth and happiness. Last year I wrote my Crystal Ball article still gob-smacked over the whole President Trump thing. This year I’m on a little more stable footing.

Last year I predicted the Euro-zone would roll around in its own misery and its politics would continue to edge ever more rightward; I was right. Last year I predicted Trump would keep American politics stirred up like a hornet’s nest and I was right. (I also predicted that the American economy would suffer under Trump and I was wrong) I predicted the Chinese dragon would continue to breathe fire and grow and grow … right again. As predicted, Xi Jinping consolidated his power base at the 19th Communist Party Congress tightening his grip and assuring a steady march forward for the world’s second largest economy. And I predicted an Asian rally and great things for Thailand’s economy. The baht is the strongest currency in Asia and still exports and tourism are as robust as ever. It doesn’t make economic sense, but I don’t mind being right.

 

So what’s up for 2018?

 

Sunny in Belgium?

 

Globally things should be fairly rosy, especially for the EU. Last year they were suffering through a case of the “Brexit Blues”, but now Europe looks surprisingly optimistic. After surviving two recessions in the past decade and a near break-up, a rally seems to have begun. Economic sentiment is enjoying a ten-year high, consumer borrowing is up and unemployment is down nearly 30%. Even Greece, Europe’s black sheep cousin, looks to be waking up from a drawn-out nightmare and is projected to squeeze out 1.8% growth in 2018. Don’t get me wrong. An aging population, sluggish investment and the economic root canal known as “Brexit” still looms. But, the mood in Europe could feel more like normalcy than crisis this year.

With Angele Merkel entering what is sure to be her last year of mandate, Emmanuel Macron, the dynamic new French President, is on deck to take over leadership of the EU. The cutting new right-wing edge of Europe is already breathing new hope into the Euro-zone, slightly outpacing the politically dysfunctional US.

 

Back to being America

 

The blustering tempest-in-a-teacup known as Donald Trump will continue to blow, but Americans seem to be tiring of this sideshow and moving on. The massive tax-cuts and infrastructure programs promised by the rookie president haven’t materialized and probably won’t. America’s economy won’t produce the big surge Mr. Trump wants but it will continue to grow jobs, wages will continue to rise and most importantly, GDP will expand by about 3%. A muscular dollar may let the air out of American exports a little but the whole world likes it when Americans have confidence in their currency. Trump will continue to be Trump, and Americans will do what they do … work and spend.

Even some of the most lackluster economies are looking better. Scandal wracked Brazil and sanction-hobbled Russia will be able to eak out a 2% growth in GDP. Even sub-Saharan Africa will grow by 3%. Rising tides lift all boats I guess.
Big Red rolls on

The big question on everyone’s mind is China. After consolidating power it appears President Xi Jinping is prepared to let some air out his country’s bubble economy (or economies). Industrial capacity has already been cut. Property inventories are being cleared. Interest rates are being allowed to rise. Debt is being cut. The projected growth rate is around 6.5%. All of these measures could backfire, but the amount of cash reserves China can throw at any economic disturbance should calm fears of a total bust. When you hear about how the Chinese economy is “slowing down”, keep in mind that it will still double the growth of the rest of the world. Yes, Big Red rolls on.

It is important to understand the difference between a free market capitalist model and what China has. The Chinese government is the epitome of having its cake and eating it too. It is an autocratic government supporting a state-dominated capitalist economic model with all of its 1.3 billion citizen’s support and money to spend. It can move swiftly and decisively without all that messy democratic process.

As he plays the role of “benevolent dictator”, Xi Jinping understands completely how fine a line he is walking. As long as China’s economy is growing, 1.3 billion people are his country’s greatest asset. If things start heading south, 1.3 billion disgruntled citizens are his worst nightmare. My money is on President Xi to keep things chugging along with a lid firmly sealed on any dissent.

 

Copying the Copycats

 

Here in the ASEAN zone we continue to move both in the shadow of and in sync with China. Nearly all emerging markets in our neighborhood look to China as an example. Partially it is because they want to emulate China’s success at generating economic growth. And partially it is because they instinctively prefer iron-fisted authoritarianism as their governing game plan.

Take a look around. Cambodia is celebrating 30 years or so of authoritarian rule. After showing signs of democratic light, Myanmar seems to be backsliding into top-down country management. Even the Philippines has opted for the strongman-with-a-machete model of governance. And Thailand’s junta don’t appear to be going anywhere. Even if elections happen in 2018, the new constitution ensures them so much over-watch it won’t feel like they’ve missed a beat. But as long as the infrastructure projects keep rolling, exports keep flowing out, tourists keep flowing in and unemployment is virtually non-existent, nobody will care.

The historical purveyors of traditional democratic ideals have turned inward. No longer is the EU pushing the democracy envelope. And the shining light from Lady Liberty’s torch across the sea has been extinguished. Donald Trump could give a rat’s rear end about Southeast Asia. The democratic war cry of “life, liberty and the pursuit of happiness” has been replaced with “democracy ain’t for everybody”.

In an ironic twist of economic and political fate, the country famous for making cheap copies of everything is being copied itself. When we wake up from 2018, more of the world will look like China than it did in 2017.
Feel about that however you choose.

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