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Looking one year ahead

January 11, 2019


The turn of the year means that one’s inbox inevitably gets overwhelmed with “The world in the new year” pieces. Some are so general to be almost cut-and-paste from each other; some sector-specific ones are full of grinding detail; some (and I think this is relatively new) are so politically tilted that they are almost unreadable. And, if one is engaged in futures and strategy, they all have to be read, and thought through, and analysed.

The short time horizon of “the next twelve months” is not one in which SAMI generally operates. We prefer to drive strategy from the point of view of the future, not forgetting the important lessons from history. Too many assumptions are built into the present, and it is part of the freshness of the future-driven approach that those assumptions can be challenged in a way which is positively useful, as opposed to simply building out from the world as it is.

So one particular piece, circulated at the beginning of December 2018 by Saxo Capital Markets really caught our eye. Even the headline is promising “Outrageous Predictions 2019”, which at least implies a awareness often missing in many short term projections. As the authors say, “Riding roughshod over the consensus, they look at some highly unlikely events that could have a tremendous market impact – if they come to fruition”. The caution here is important – those of us who look at the future from a professional standpoint tend to disdain the wilder reaches of futurology, because evidence and clear-thinking is important; but heavily caveated thinking such as this can be useful in developing weak signals, fostering creative thought, and crashing other people’s thoughts up against one’s own in a way which may generate useful results.

Whilst the predictions are focussed on the capital markets, there is a lot of food for thought. Let’s look at a few of them, and draw out the long term futures lessons.

EU announces a debt jubilee

As a response to the unsustainable levels of public debt (Italy will have to refinance EUR300 billion in 2019, for instance), and in response to the gilets jaunes protests and the populist tide, this would be a politically attractive move for the ECB. It is probably politically unacceptable in Germany, but were it a way of stopping the Eurozone fragmenting or the Euro collapsing, then it enters the realms of the feasible. Long term, this points up one of the central embedded risks within the EU which will, at some stage, have to be resolved – debt, both public and private, is at an unsustainable level. The world is not yet out of the effects of the great recession of 2007-9, and the two factors – debt and the tail of the recession – taken together will require some real action in the next 5-10 years.

Global transportation tax enacted as climate panic spreads

SAMI’s global drivers have included climate change since their inception. Towards the end of last year, we moved climate change from its role as one amongst many to a higher level of importance, where it is included force majeure in every scenario, since we believe that the evidence now shows it as an ongoing and increasing event. A global taxation response seems to be beyond the ability of the world to organise at present; but Saxo’s prediction is a valid one: climate change will require policy responses which both dissuade fossil fuel use and which raise funds for climate change mitigation. We are already seeing global responses, but we see a response such as this as being unlikely in the near term – the lesson of climate change is that governments respond late, inadequately, and only under pressure. However, we do see local taxation being an option in the short-medium term.

X-class solar flare creates chaos and inflicts $2tn of damage

There is a new Solar Cycle coming round in 2019. In 2012, the earth just missed an X-class flare. We may not be so lucky in 2019. We certainly will get one at some stage in the future. This is one of those science-fiction sounding outside risks which, on closer examination, are actually very real; but like the risk of the eruption of the Yellowstone supervolcano, one which it is possible to anticipate, though perhaps not to plan for.

Prime Minister Corbyn sends GBPUSD to parity

Our work on “Britain in 2030: Four post-Brexit scenarios” encompasses four future scenarios for the UK and the world. This prediction is one which plays well into our scenario set, though we anticipate that any fall-out from it would have resolved into one of our scenarios in ten years time. However, those in the City who we have spoken to occasionally raise the “triple whammy” of a hard Brexit, followed by an election in which Labour wins, followed by the imposition of exchange controls, and we could certainly see that that would cause Sterling and the Dollar to reach parity (alongside the Euro, probably). This would make UK exports significantly cheaper, but push up the cost of imports and hence the cost of living in the UK. UK businesses would become even more attractive for takeover byoverseas companies. And, no matter what happens with the ability of Brits to travel following Brexit, we would have to rediscover the joys of Britain’s wonderful holiday destinations, as going abroad would become impractically expensive. Labour may not get the chance to run for office until 2022, thanks to the Fixed Term Parliaments Act, so we can put this one into the “medium term” – though the very real risks of Brexit may well cause serious movement on exchange rates even absent a Labour victory.

Saxo’s outrageous predictions are indeed outrageous. But they’re good for provoking thought for the medium term, if not all for 2019. Have a look – there are ten in total – and let us know your views!

Written by Jonathan Blanchard Smith, SAMI Fellow and Director

The views expressed are those of the author and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

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