Economic predictions are not to be taken that seriously as they are an extrapolation of today’s knowledge – and introduce significant opinion to reach a particular conclusion.
In our view, 2013 has less uncertainty – and more certainty that things are not going to be wonderful. But in 2012, we have already tasted the bitterness – and the effects are more definable.
|Oil||Only a war in an oil exporting country will push oil prices over $100 because of a cooling global economy. Oil prices should be ending the year in the $85 to $100 range, and falling below $85 if Europe has a recession and China’s growth falls below 5%.||As we pen this, oil prices for WTI remain slightly above $90. There is no dynamic currently in play which should push prices over $100 or under $85 barring a war or massive economic contraction. The only real risk here is conflict in the Middle East.
|Inflation||Staying with last year’s prediction, inflation will only be an issue in economies growing more than 5% – potentially only India and China. Yet both China and India are taking steps to contain inflation, and likely inflation will not be as much of an issue in 2012 as in 2011.||There just is no global dynamic in play currently which will budge inflation. Inflation will remain extremely modest.|
|Europe||Any European prediction is a dice roll. Honestly, there is no reason European outlook needs to be too pessimistic – except that the mechanisms to control a modern economy do not exist in the EU monetary or fiscal policies. These policies are being created on-the-fly between parties who do not see the same solutions, and have differing priorities and needs. Time is not Europe’s friend. Hopefully, the train will stay on the tracks – but because “luck” eventually runs out – a trigger event (likely in the banking system) is statistically predicted. The European Union is already in recession in parts, and will be deep in recession as a whole by the end of 2012 regardless. Our “guess” is that the Eurozone will remain intact, but there is no accurate way to game potential scenarios to make a prediction on how to make money from the chaos.||Europe as a whole likely will improve as 2013 progresses. Very few of the real issues were resolved in 2012, and yet the Eurozone weathered the storm – and we suggest this should be considered the big win. 2013 should offer more “can kicking” – and doing just enough to keep the ship afloat while economies strengthen. As long as there are no economic jolts, the Eurozone will be in better shape at the end of 2013 than the beginning.|
|USA||Europe will govern the outcome of the U.S. economy in 2012 as a contagion caused by a European banking crisis would affect business income, and create a major contraction in investment. It is likely the Fed will trigger QE3. GDP will be negative at the end of the year if Econintersect’s Europe prediction is correct. Real unemployment (employment to population ratios) will improve slightly even though the GDP is negative.||Of out 2012 predictions, the USA turned out to be our “miss” – as we believed a recession was in the cards at the end of 2012. The USA is being held from real expansion by inept political leadership – but even with the fiscal cliff looming (higher taxes, lower government expenditures), the underlying dynamics should overcome. 2013 will continue the “muddle” along economy – with hopefully strength popping up in 4Q2013.|
|Asia||Asia should continue to expand regardless of Europe. It is possible that the Chinese GDP could contract because any slowdown in construction has a major impact on GDP, and India’s growth will moderate due to monetary policies to fight inflation. Definitely 2012 will provide some headwinds to the Asian tigers.||2013 should offer more of the same. Asia will continue to regear which will produce growth well under 10%.|
|Currency||The dollar will dominate most currency pairs. If a trigger event occurs in the Eurozone, look to see the Euro fall toward (or even under) par to the dollar.||We still think that parity of the Euro to the dollar should have occurred, but it did not. It will be interesting in 2013 to watch the Yen to see if the government / JCB is capable of devaluing the yen. Other than the Yen, most currency pairs should be stable in 2013.|
|Commodities||Fed QE3 would send precious metals up sharply. If there is no QE, precious metal prices, as well as other commodity prices, will drift lower.||Our commodity prediction was a bust. QE is no longer what it is cracked up to be. There are no long term dynamics in play to move prices much in any direction baring a real nasty recession. The commodities markets are gamed, with the players having too much to lose by wild movements. Therefore our 2013 prediction is static commodity prices.|