FT writers offer their forecasts for the year ahead, from the oil price to Putin’s next moves
As 2014 comes to a close, the Financial Times once again engages in a harmless bit of soothsaying. As ever, we invite some of the FT’s experts and commentators to dim the lights, dust down their crystal balls and predict what the next 12 months will bring on topics ranging from the British general election to the outlook for wearable technology.
This is a hazardous enterprise, of course. Looking back at last year’s essay in New Year forecasting, there were a few predictions we would rather not talk about. Chris Giles said the Bank of England would raise interest rates in 2014. Simon Kuper predicted that Brazil would win the football World Cup. Clive Cookson predicted that Virgin Galactic would launch its first successful commercial flight this year.
Some colleagues should take a bow. Victor Mallet correctly declared that Narendra Modi would win India’s general election; Jonathan Ford was bang on about Scotland voting No to independence (even if that looked shaky before the poll); Gideon Rachman foresaw wins for both the French National Front and Britain’s UK Independence party in the May European elections.
Of course, an exercise such as this is only partly about providing the right answer to a given question. Much of the skill lies in choosing the correct question in the first place. Last year, it did not occur to us to inquire whether Vladimir Putin would invade Ukraine, whether a shady group called Isis would become a strategic threat in the Middle East or whether Cuba would come in from the cold. It will doubtless be the same in 2015. Things will happen in the theatre of global news that none of us can — as yet — imagine. James Blitz
Will the oil price drop below $50 per barrel?
Yes. There are two reasons for thinking that the oversupply in the global oil market that caused the Brent benchmark price to drop by almost 50 per cent between June and December this year will persist into the first half of 2015 at least.
First, supplies are likely to grow. The US shale oil industry, widely seen as the most immediately vulnerable sector in the downturn, will be able to increase production despite of the financial pressures it faces. Meanwhile Saudi Arabia and other members of Opec, the oil producing countries’ group, are unlikely to make anything other than a notional cut in their production.
Second, demand growth will remain as torpid as in the second half of 2014. A substantial rebound in growth in China and other emerging economies could change that but is months away at best. In those conditions, oil can be expected to fall below $50 a barrel.
Over time, market forces will work. Lower prices will stimulate demand and choke off supply, especially in the US, and oil prices stand a good chance of being higher at the end of the year than at the beginning. One thing is for sure: the further prices fall, the greater the damage to investment in oil production — and hence the steeper the bounce back will be. Ed Crooks
Will Ebola be eliminated in West Africa by the end of 2015?
Yes. The West African Ebola epidemic started in Guinea a year ago and started causing serious alarm in September. Since then the world has put enough medical and financial resources into the battle against the virus to brake the exponential growth in cases, though with the death toll approaching 7,000, the epidemic is not yet under control.
Virologists say the nature of the virus — often lethal to those who catch it but not super-infectious — makes eradication possible, if other people avoid direct physical contact with patients. Local health workers are tackling Ebola more safely and effectively today, after a traumatic learning period, and outside assistance is still pouring in from the World Health Organisation, Médecins Sans Frontières and many other organisations. There will be setbacks and flare-ups during 2015 but west Africa can look forward to an Ebola-free 2016. Clive Cookson
Will Britain have a National Government after the next general election?
Yes. Britain’s last election in 2010 resulted in the first coalition government since 1945. The next one in May will go further, recreating the “National” governments of the 1930s by bringing the two main parties, Labour and Conservatives, into power together. As in 1931, this will be a matter of necessity, not choice.
The shrinkage of the vote of all three main parties will make it impossible to construct a workable coalition involving the Liberal Democrats and either the Tories or Labour. The price of doing business with the surging fringe parties, such as the Scottish National party and Ukip, will be too high for either Labour or the Conservatives to stomach. So will the risk of a minority administration, followed by a quick second poll.
The formation of a National Government will not be easy — and there will be much agony over the question of who should lead it. Any coalition deal will be highly contentious and lead to defections from both sides. Politicians will take time to adapt to the newly fragmented landscape. Jonathan Ford
Will the European Central Bank adopt full-scale quantitative easing?
Yes. Headline inflation in the eurozone has tumbled to 0.3 per cent, far beneath the ECB’s target of “below, but close to, 2 per cent over the medium term”. The risks of entrenching expectations of ultra-low inflation or outright deflation are now great.
This is why Mario Draghi, ECB president, announced on December 4 2014, that the balance sheet “is intended to move towards the dimensions it had at the beginning of 2012”. The implied increase in the balance sheet is about €1tn. It is hard to believe alternatives to outright purchases of sovereign bonds would secure this result.
The shift in language from “expected” to “intended” was, unfortunately, over the opposition of six members of the council. Yet, however fierce the opposition, the ECB will almost certainly be forced to try. Then watch the sparks fly. Martin Wolf
Will Russia annex new territory in Ukraine or Europe?
No. Faced with an economic crisis at home and with sanctions overseas, Mr Putin will call a halt to his expansionism — at least in 2015. Instead, the Russian leader will attempt to consolidate his gains in Crimea and to keep parts of “eastern Ukraine” in a frozen conflict. This will prevent them from being governed effectively from Kiev.
Still, that judgment should be tempered by two sobering qualifiers. First, the Russian leader has consistently surprised western observers on the downside — few anticipated Russian annexation of Crimea in 2014. Second, one possible reaction to economic trouble at home would be for Mr Putin to stir up domestic support and nationalism by further intensifying the conflict in Ukraine. But despite all that, the economic and military risks of an expanded war look too great for Moscow in 2015. Gideon Rachman
Will the US put combat troops on the ground against Isis in Iraq and Syria?
No. Isis — the Islamic State of Iraq and the Levant — will certainly continue to represent a major threat in 2015. The Pentagon will therefore remain heavily focused on the region — especially in Iraq — seeking to degrade the capabilities of Isis.
Special forces are already on the ground assisting with the direction of air strikes. A bigger deployment of these elite contingents is likely next year. America will also send more military advisers to Baghdad, even using them to accompany Iraqi troops on operations — though President Barack Obama is still resisting this.
What the US and its European allies will not do, however, is deploy their own combat forces on the battlefield. Fighting Isis will still be up to the Iraqi army. Western governments will stick to the view that Isis will only be defeated when the Iraqi national army, local Sunni tribes and rebel groups are strong enough to take it on. Roula Khalaf
Will China’s growth rate fall below 7 per cent in 2015?
Yes. Beijing may be intent on keeping its official gross domestic product growth target next year at 7 per cent or above to prevent confidence from unravelling. Unfortunately, the Chinese economy is unlikely to oblige and will slow to just below this figure.
With GDP already set to come in slightly below official expectations in 2014, economic planners will be eager to avoid missing the target for a second time next year. Nevertheless, the sharp build up in domestic debt, slowing fixed asset investment, weak property sales and a lacklustre manufacturing sector will all weigh heavy on China’s dynamism.
Monetary policy will probably ease further as Beijing attempts to prevent an environment of low inflation (as measured by consumer prices) from slipping into a deflationary spiral. Such moves are set to underpin consumer spending, Beijing’s best hope to drive growth. James Kynge
Which central bank — the US Federal Reserve or the Bank of England — will be the first to raise interest rates?
The US Federal Reserve. The adage is never to bet against the Fed and it remains good advice regarding interest rates in 2015. Economics alone would not lead you to this conclusion. Britain’s rapid growth and productivity crisis has all but eliminated spare capacity in the economy, reducing the scope for further non-inflationary growth. With lower participation, the US labour market appears to have more slack and can safely hold interest rates lower for longer.
Predicting interest rates is not just about economics. The behaviour of the central bank is also important. While the Fed is reasonably predictable, the BoE is notoriously flighty. One month, it suggests it has its finger on the trigger; the next, it appears it could not be further from a rate rise. It will not want to do anything before the May general election and is likely to find excuses to wait for the Fed thereafter. Chris Giles
Will a serious rival emerge to Hillary Clinton in 2015?
No. We will not know the name of the Republican nominee until 2016. Even then, he — there are no female hopefuls among the 20 or so names doing the rounds — will be so bruised that Mrs Clinton will begin the general election with a head start.
In the Democratic field, she will be challenged by one or two second-tier candidates, such as James Webb, the former Virginia senator, and Martin O’Malley, the outgoing governor of Maryland. But Mrs Clinton will keep her grip on the primaries. Her only real threat, Elizabeth Warren, the populist senator from Massachusetts, will decline to run in spite of strong urging from the liberal left. When it comes to it, Ms Warren will not want to stand in the path of the election of America’s first female president. Edward Luce
Will there be a fall in the value of London super-prime property?
Yes. Prices will fall by about 10 per cent in 2015 because of an oversupply of new build super-prime properties — although this will mainly be felt outside the traditional top-end residential stamping grounds such as Mayfair and Knightsbridge.
Some new build super-prime properties — such as Neo Bankside and Battersea — will struggle to hold their value. The former may have remarkable views across the Thames to St Paul’s Cathedral and easy access to the City but it is a far cry from Mayfair. And while Battersea power station has some surface glamour, its immediate environs are still more Battersea dogs’ home than super-prime.
The threat of Labour’s mansion tax also hangs like a sword of Damocles over well-heeled property buyers. “Adjustments” and “corrections” will continue until the May election. Jane Owen
Will India’s growth rate accelerate under Narendra Modi?
Yes, but it depends what you mean by accelerate. India really ought to grow faster under Mr Modi than in the last dismal year of the previous government. In truth, growth had probably already hit bottom when it dipped below 5 per cent in 2013. It rose to 5.7 per cent shortly after Mr Modi took over, though he can take little credit for that. Next year, India has a few things going for it. The weak oil price will ease pressure on the current account deficit. It should also help bring inflation further under control, opening up the prospect for a growth-enhancing cut in interest rates. In Raghuram Rajan, Mr Modi is lucky to have a world-class central bank governor.
The real challenge, however, is to get India’s growth potential back to the 7-9 per cent range it occupied only a few years ago. This will require structural change. He will have to do more than frighten a few bureaucrats into turning up to work on time. Some big-bang reforms — say in the labour market, on tax or foreign investment rules — are needed to help convince investors that India is back in business. David Pilling
Will this be the year that bitcoin and other crypto currencies collapse?
No. There are too many deep-pocketed interests standing ready to throw good money after bad defending the cryptocurrency experiment, thus preventing an outright or dramatic collapse.
Nevertheless, the chances of bitcoin, the most popular of this new breed of self-clearing financial instruments, making it as a mainstream currency are now zero. Prices have been floundering at around $350 a coin for months, escalating losses for those who invested at last year’s $1,200 highs.
Add to this a stream of high-profile scandals over the past year, such as the collapse of Tokyo-based currency exchange Mt Gox in February, and you realise it is not a question of if but when the public loses interest in this experiment entirely. Izabella Kaminska
In personal technology, will 2015 be the year of wearables?
No. Apple’s Watch, due to launch soon, has at least cracked the aesthetic code: it is a wearable you might actually want to wear. It will also become a powerful techno-status symbol. But other than a few useful things such as telling the time, it is not clear why you would need it.
The other great hope of the wearables industry, Google Glass, has missed its promised launch date and is in danger of becoming a symbol of tech hubris. Does Google really expect people to adopt its cyborg chic in their everyday lives? Expect it to reboot the idea this year, probably in a more limited way: there are many jobs where having a heads-up display would be very useful.
For the mass market, applications such as health monitoring hold great promise. But wearables still look like a technology in search of a purpose. The truly useful gadgets are yet to be invented. Richard Waters