As has been the case in the run up to Christmas each year for more than a decade, Saxo has just released its Outrageous Predictions for the year ahead.
These include that French president Emmanuel Macron will resign, that the UK will hold an UnBrexit referendum and vote to rejoin the EU, that EU member states will form joint armed forces issuing EU bonds to fund the project, and that the Opec countries plus China and India will quit the IMF and agree to trade between each other in a new reserve currency.
And there are others, such as that at least one country will legislate to ban domestic meat production by 2030 and a group of tech billionaires will join together in a trillion-dollar development project to combine new energy-generation sources with the essential-but-still-missing power transmission and storage infrastructure.
We have entered into a global war economy, with every major power across the world now scrambling to shore up their national security on all fronts
All good, clean fun, of course, and well worth a read in between budgeting for next year’s job cuts and planning the correctly inclusive wording for the invite to your team’s winterval celebration.
But while Saxo’s predictions are never about being right and always about being outrageous, often it is outrageous surprises that move markets. Previous outrageous predictions that came true included for 2016 that the UK would vote for Brexit and for 2017 that bitcoin would rally massively.
The thinking underlying most of the outrageous predictions for 2023 is deeply serious and rather grim: essentially that a return to the disinflationary pre-pandemic world is now impossible “because we have entered into a global war economy,” says Steen Jakobsen, chief investment officer at Saxo, “with every major power across the world now scrambling to shore up their national security on all fronts; whether in an actual military sense, or due to profound supply-chain, energy and even financial insecurities that have been laid bare by the pandemic experience and Russia’s invasion of Ukraine”.
Inspiring the predictions for 2023 are worrying echoes between the state of the world and particularly Europe today and the start of the second decade of the 20th century. In 1910, British lecturer, journalist and politician Norman Angell famously published The Great Illusion, contending that the vast growth in mutually beneficial trade made it inconceivable that there would be another serious war in Europe. The illusion was that there was anything to be gained from starting a military conflict. Six years later, the continent was shattered.
War-economy mentality
Russian president Vladimir Putin’s outrageous decision to invade Ukraine and in the process ruin his own country’s trade with Europe has exposed his former partners’ military inadequacies and dependence on a Germany-centred industrial machine fuelled by cheap and plentiful Russian energy.
Saxo predicts that the war-economy mentality will take hold not just in Europe but between the global powers, making it hard for satellite countries to remain non-aligned with the US weaponization of trade.
As part of this, Saxo suggests the coming recession imposed by central banks will fail to contain inflation because nations will feel compelled to invest in the new priorities of economies on a war footing, including securing energy, expanding military capabilities and reshoring production.
The one bit of good news about markets is that gold will finally rally, but that’s because, with government finances already looking unsustainable, central banks will be pressured to miss their targets to inflate those debts away.
To Euromoney, that last notion looks far from outrageous but rather quite probable. So, too, does the analysis for the UK of a brutal fiscal programme, crushing recession, weakening tax take and soaring deficits inciting mounting demonstrations and eventually early elections.
Saxo makes no mention for next year of bitcoin, perhaps because the whole crypto scene is essentially so outrageous anyway.