Just about every City economist and strategist has outlined their big themes for the coming 12 months. Tensions in the eurozone, rising inflation, a double-dip recession and currency battles between China and America have been exhaustively forecast. But what makes a year interesting is the stuff no one was expecting. Who would have guessed, for example, that BP would come close to being destroyed by an oil spill in the Gulf of Mexico during 2010, that Cadbury would be taken over, or that both Greece and Ireland would go bust and put the euro in mortal danger? Here are five surprises to watch out for in 2011.
1. The British economy storms back
Britain is turning the corner faster than anyone could reasonably have expected. Growth keeps surprising on the upside and unemployment hasn’t taken off in the way many feared. The coalition has proved remarkably durable, and has made a good start on getting the budget deficit under control. And, a few rioting students aside, the public have accepted austerity.
It may not last – but it just might. There are encouraging signs of a recovery. The 30% devaluation of sterling in the wake of the credit crunch is reviving our withered manufacturing industry and cutting into the trade deficit. The crisis in the eurozone has stopped bond markets getting too worried about our own fiscal problems. Real wages are being cut. Average earnings are rising by 2.2% a year while inflation is running at 3.3% (that’s the official figure – the real rate is higher). There are few quicker ways to restore competitiveness than wage cuts and currency devaluation. It’s too soon to talk about a British Tiger, but there are signs the UK will do well.
2. Rupert Murdoch sells his British newspapers
There’s little evidence that the pay-wall for The Times and The Sunday Times has been a success. News International claims 200,000 paying online readers, but it isn’t clear how many are paying full price, or will stay with it. I haven’t met anyone who has subscribed, and I suspect you haven’t either.
Meanwhile, the circulation of The Times continues to fall. It is now 466,000, down 17% on the year. The Sunday Times is stagnant, while The Sun and The News of the World are also in decline. But the real problem for Murdoch is that he wants to take full control of BSkyB. It’s going to be hard for him to do that while he is also the country’s most powerful newspaper publisher. There are too many competition issues. But is he really going to sacrifice the chance to get full control of a fantastic growing business just to hang onto one that looks to be in irretrievable decline? It seems unlikely. This is the year he could get some money for the papers while they are still worth something.
3. Jean-Claude Trichet’s term is extended at the ECB
The capable Frenchman is due to stand down in October from the world’s second-most powerful central bank, the European Central Bank (ECB). The two leading candidates to succeed him are Mario Draghi, the governor of the Bank of Italy, and Axel Weber, the president of Germany’s Bundesbank. Neither man is remotely suitable. Installing an Italian at the ECB’s Frankfurt headquarters would provoke riots in Hamburg and Munich. It might well be the decision that finally pushes Germany into quitting the euro – with Austria and the Netherlands close behind. Weber wouldn’t be much better. He would be the hard money, austerity candidate, signalling years of German domination. Greece and Portugal might decide they had no future in the euro.
What’s the EU to do? It could appoint an obscure central banker from Finland or Luxembourg. But it would be far easier to extend Trichet’s term by two years until the euro is through the current crisis.
4. Initial public offering market returns
In 2011, there will be an upsurge in new listings. Private-equity houses took over hundreds of firms at the height of the boom. With the credit markets unfreezing, and the equity markets doing well again, they will be looking to unload a lot of them. They won’t be able to sell them to each other the way they used to, so they will have to list them instead. And governments will be looking to unload some of the banking shares they took control of during the credit crunch. The net result will be an initial public offering (IPO) bonanza.
5. African investment rockets
On Christmas Eve, China invited South Africa to join the BRIC group of nations – Brazil, Russia, India, China – making it the BRICS. That was an indication of how the continent is starting to join Asia and South America in rapidly modernising its economy. Westerners tend to focus on African disaster stories. Yet China in particular is pouring massive investment into the region’s wealthier countries and growth is starting to pick-up. This will be the year when investors get bored with the other emerging markets and start looking to Africa instead.
Indeed, by the end of the year, South Africa, some of its neighbours and Britain may be among the best-performing economies – and that really will be a surprise.