Saturday, December 29, 2012

The year ahead

It is not my style to opine on current events, and especially not to forecast. Yet, seems that there are some general trends that are worth mentioning that may not have been stated enough. So here we go with my take about what lies ahead.

Latin America

Latin America has done remarkably well lately, especially considering developed economies were not. Even more remarkable is the very rapid income growth of the poor population leading to a rapid reduction in inequality. There is still a lot of potential and things look good. Of course, the region is always good for bad political surprises.

Asia

This is a big continent, so it is difficult to generalize. Its economy has grown tremendously in the past years and this will continue. Unfortunately, there are risks. May a housing bubble burst in China? Will the very large number of underprivileged in China ask for its fair share of the new riches? Can India continue its liberalization? Contrast this with long-stagnating Japan, whose new government wants to get the economy kicking again by creating inflation (it is not clear how the government can do that). And politics will continue to dominate economic affairs in the western part of the continent.

Europe

Europe is a mess, and mostly of its own doing. Undoing this is not going to be easy, as credibility needs to be rebuilt. This is going to be another nerve-wracking year with empty promises. Greece will continue in its corrupt ways, inexplicably dragging everybody with it (and possibly collapsing for the second time a currency union). Italy will go through unnecessary instability thanks to Berlusconi again, and the French government will listen to the street instead of the experts. Watch out also for Norway, Sweden and Switzerland, where housing bubbles may burst. And Germany will continue posturing and lecturing the others, while everybody ignores the UK (and Russia, too).

North America

Speaking of unnecessary posturing, the US is the poster child right now. Republicans are hoping taxes will go up with the "fiscal cliff" and claim it is not their fault, then negotiate a compromise with taxes at midpoint and claim victory thanks to lowered taxes. And what did we gain from this? Uncertainty, frustration and unnecessary distractions. And unless Democrats (and the President) finally take a strong stand, politics will remain in flux and threaten a nascent recovery. Canada will watch all this, shake its head and go on, hoping for the best.

Africa

What to think of Africa? It is going to remain a basket case, with a few hopes that are quickly dashed. Rebels will be disrupting the normal course of things in several countries, corruption and rent-seeking will remain the principal industry, and foreign aid will continue to be wasted. Let us hope that manufacturing will finally take off on a continent that is not made for agriculture.

In summary

Politics will continue messing with economies (and economists).

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