2011 Predictions from Financial Times

Amplify’d from www.ft.com

Cuts, leaks and atom smashing

James Taylor illustration
Will the euro survive?
It is probable that defaults will also be prevented in 2011. But, in the longer run, defaults – or, more precisely, debt restructurings – look inevitable, not least because that is what Germany wants to happen.
The big question is whether countries that have experienced a public sector default will be prepared to soldier on within the currency union. The costs of departure will certainly be lower in these dire circumstances. If, as seems plausible, the alternative is years of deflation and depression, some countries might choose to leave. But 2011 will not be the moment for that truth.
Will Europe allow a bank to fail?
In most European countries, bank balance sheets are riskier than public finances. In 2011 it will become increasingly clear that the greatest threat to sovereign solvency is the continued insistence that taxpayers will make bank creditors whole. So, the choice – and not just in the eurozone – is between propping up banks and keeping public finances afloat. Next year, Europeans will choose to save their states rather than their banks: 2011 will be the year not of sovereign defaults, but of haircuts for banks’ senior bondholders.
Will China’s bubble burst?
There is no China bubble, so it cannot pop
Some parts of the economy – property prices in first-tier cities, for example – are a bit frothy, but the idea of a generalised bubble is folly. Surges in lending in 2009 and 2010 have helped to generate inflation in asset and food prices.

Will Korea reunify?

Reunification may happen one day. But not in 2011. David Pilling
Will WikiLeaks retain its potency?
Julian Assange’s fame has grown since his early revelations about Afghanistan and Iraq, but his reputation has been tainted by allegations of rape and WikiLeaks’ scattergun approach in releasing the US diplomatic cables. Attempts to disrupt the operation have largely failed, while a stream of leaks continues to embarrass and intrigue. More will follow next year. WikiLeaks will soon face a greater challenge, however: competition from a growing number of copycat leak sites.
Will the US and its Nato allies start winning the war in Afghanistan?

Yes, events should begin to go Nato’s way. The US and its allies are pressing the Taliban in its heartlands. The Afghan army is growing in numbers and quality. Nato has the combat troops and numbers necessary for success.

Will the Mubarak era end in Egypt?
Ailing Hosni Mubarak, Egypt’s ruler since 1981, has no intention of relinquishing his job, unless his health demands it. But if he cannot run for re-election in 2011 his ambitious son Gamal may not be able to take over. The favourite of a young, economic reformist wing in the ruling National Democratic Party, Gamal faces resistance from a powerful old guard and the army may not accept him. If the elderly Mubarak is truly planning to install his son, he must engineer the succession in his lifetime.
Will there be civil war in Sudan?
At any time conflict rages somewhere in Sudan. January’s long-awaited referendum on the independence of southern Sudan will inflame tensions, but will not lead to full blown civil war.
Will social unrest worsen in Europe?
Across the European Union, governments are cutting spending and unemployment is rising. This month, violent protests erupted across Europe. The immediate cause varied, but economic austerity was the common backdrop. That climate of austerity is likely to worsen and spread in 2011, as Greece and Ireland press on with International Monetary Fund-backed cutback programmes – and Portugal, Spain and perhaps Italy and Belgium struggle to ward off sovereign debt crises. Cuts will also be the order of the day in Britain. Meanwhile, the unpopularity of President Nicolas Sarkozy in France and his allegedly “bling” style – plus the approach of a presidential election in 2012 – makes unrest probable
Should investors switch out of bonds into equities?
es. Picking assets, at least at the start of the year, will be about choosing the least worst option. Equities have risen a lot since their 2009 trough. Bonds have also enjoyed an impressive ride, although theirs arguably started earlier, in the 1980s.
Will bonuses shrink?
Yes – but not for the reasons politicians and taxpayers hope. The incentive pool from which investment bankers’ bonuses are paid will be down by about 20 per cent.
Will the currency wars go nuclear?
No, barring renewed global recession – but heavier ordnance may be wheeled into action. After several years when exchange-rate tension was largely a bilateral US-China affair, emerging markets across Asia and Latin America have joined the fray, complaining about their currencies being driven higher. But, rather than China taking all the blame for holding down the renminbi, the US drew at least as much flak for “quantitative easing” pushing down on the dollar.
Where will oil finish the year?
Looking at the oil markets today, the bulls are making the most noise. Oil demand is set to increase in 2011 – the International Energy Agency has lifted its estimate of global oil demand growth for 2010 to 2.3m barrels a day, the second-highest level in recent history. Stronger economic growth will help underpin that demand. Opec, however, will be under pressure to make sure prices do not go too high and may increase production. 2011 will be remembered as the year when oil prices tipped $100 a barrel – they are likely to finish the year around that level, plus or minus. Sylvia Pfeifer
Will there be a global food crisis?
Yes. The global bill for food imports will surpass the $1,026bn record of 2008 and prices of several agricultural commodities will also top their previous record. The Food and Agriculture Organisation’s benchmark food index will also set a new high. Among key crops, wheat, corn, barley and oilseeds such as soyabean will see large increases; only rice will have limited gains.
Will we find the Higgs particle?

The Higgs boson, predicted but still unseen, is the most wanted subatomic particle. Scientists believe it underlies the most important property of matter – mass – and its discovery would help tie up several ideas about the laws of physics.

So the Higgs is target number one for the world’s most powerful atom smasher, the Large Hadron Collider at Cern near Geneva, which has been running at full tilt for a year.

Read more at www.ft.com



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