What to expect in 2015: Europe down and crunch time for Japan and Mexico
THERE ought to be a special circle of hell reserved for my colleagues – sadly a majority – who work so extra hard to never say much of anything. All too often, analysts, fearing being wrong to the point of never trying to be right, describe rather than analyse, and go along with conventional wisdom rather than think for themselves. Having been provocative, I now pledge to put my money where my mouth is: what follows are three predictions of what we can expect in 2015.
First, a negative prediction. Despite all the gormless whistling past the graveyard by an endless array of Brussels functionaries, Europe is not going to turn a corner. Rather, it will remain the sick man of the global economy, with stagnant growth rates, mass unemployment in the Eurozone of well over 10 per cent (with a devastatingly much higher rate of youth unemployment), and the debilitating monster of deflation lurking on the horizon.
Italy and France will not manage to enact structural reforms (particularly relating to sclerotic labour markets), Commission president Jean-Claude Juncker’s stimulus will amount to nothing, and Germany will not ride to the rescue. In fact, given its disastrous medium-term demography, highly dubious decision to raise the minimum wage to a jobs-destroying level, and lack of any serious efforts to increase domestic consumption, Berlin will remain a big part of the problem, not the solution. At the macroeconomic level, I wouldn’t invest a dime in this wasteland.
Second, a positive prediction. Indian Prime Minister Narendra Modi’s reform efforts will take flight. In 2014, Modi proved himself to be a political rock star, and is now the most powerful Indian Prime Minister in living memory. The honeymoon is already paying dividends. Growth in 2013 hovered just below five per cent – a highly disappointing ending to the Congress Party’s era. In 2014, relying on the return of confidence Modi’s parliamentary victory wrought, GDP is set to increase by 5.8 per cent, with the IMF predicting a further jump to 6.4 per cent in 2015.
Nor, to quote The Beach Boys, has India’s economic comeback been solely based on good vibrations. Modi’s efforts to reform the notoriously sclerotic civil service have begun in earnest. Pushing through a national sales tax should finally allow for internal free trade between Indian states. Taking advantage of plummeting global oil prices, the government has announced plans to end India’s disastrous diesel fuel subsidies. In 2015, it will become apparent to everyone that India is rising – becoming a huge new global player in terms of both economics and politics.
Third, an important prediction: 2015 will be the make or break year for both Japan and Mexico. With Japan’s Prime Minister Shinzo Abe yesterday decisively winning the snap election he called as a rallying cry to continue with his “Abenomics” reforms, 2015 will be all about the “third arrow”. Can Abe enact meaningful structural reforms of the hidebound Japanese economy, or is it truly beyond salvation?
The canary in the coalmine for investors must be the enactment of the Trans-Pacific Partnership (TPP) free trade deal this year, uniting the economies of much of the Pacific Rim, vitally Tokyo and Washington. If Abe can stare down his farmers, bureaucrats, and construction industry, TPP can be the cudgel that allows for structural reform. A failure to enact the deal in turn should cause heretofore hopeful investors to flee.
Likewise, Mexico’s future will be on the line in 2015. More than any other leader over the past 18 months, President Enrique Pena Nieto has been singularly successful in implementing genuine structural reforms – in education, telecoms, and crucially energy. However, the violence that has permeated Mexican society – with the rule of law itself being called into question by almost unimaginably violent criminal gangs – has not yet been dealt with.
The huge protests at the ghastly murder of student teachers in the country’s underdeveloped south have called Pena Nieto’s highly ambitious modernisation programme into question. This is the year that the central government simply must devise an answer to this long-festering wound. If the President succeeds, Mexico will flourish. To fail is to doom the country to another generation of under-development.
So Europe will be down, India will be up, and with a little bit of nerve and luck, Japan and Mexico will be on their way. That’s saying something about 2015.
Dr John C Hulsman is senior columnist at Morning Wire He is a life member of the Council on Foreign Relations, and author of Ethical Realism, The Godfather Doctrine, and Lawrence of Arabia, To Begin the World Over Again. He is president and co-founder of John C Hulsman Enterprises (www.john-hulsman.com), a global political risk consultancy, and available for corporate speaking and private briefings at www.chartwellspeakers.com