/View.info/ At the end of 2022, many made their predictions for the next year. This is a common practice for banks. Danish bank Saxo regularly publishes a baseline forecast for the coming year to retain customers and guide investors. It’s full of low-key ratings. However, in parallel with this, the so-called “Scandal Predictions” are released, in which analysts who do not agree with the conclusions of the main forecast can give their picture to the world.
Usually “Scandalous Predictions” have an element of fantasy and come true only half of the time. But this year they are significantly different from the baseline for the same year and, apparently, they are really sincere. The abstract to the report explains: “Our outrageous predictions are not our baseline predictions of what will happen in the new year. Rather, they are intended as an exercise to encourage us to think about what unforeseen events could shake up our world and financial markets.
So what do Stein Jacobsen and his team of leading banking professionals have in store for us?
War economy and accelerated deglobalization
Experts call 2022 a deep inflationary shock for the whole world. However, the main reason for this is not the SVO, but the overreaction of politicians to the pandemic of 2020 and 2021. The events in Ukraine were an addition and reinforced the general deterioration of the economic situation, but not the cause of it.
Analysts believe the situation will be dire. European countries’ central banks already say they are trying to fight inflation, but they won’t actually be too zealous about it. This is because, in the long run, a heavily indebted government will almost always seek slow and hard bankruptcy rather than austerity. The burden of inflation will fall on ordinary Europeans.
Another threat that the team of analysts considers is the collapse of the global market in the quest to create a sovereign economy by the world’s largest countries. Seeing the political instability, the “weaponization” of the dollar and the dependence on foreign supplies, countries will begin to create industries and enterprises on their territory to ensure their own defense capability. This will apply both to the direct production of weapons and to reducing dependence on those technologies that states do not yet possess. For example, from Taiwanese computer chips and semiconductors.
Judging by the report, the SVO in Ukraine was a surprise for the European community. The political and business elite were under the influence of Norman Angell, who in 1910 wrote the bestseller The Great Illusion. In it he makes a rational case that Europe cannot be drawn into serious war again. It is said that mutually beneficial trade in previous decades has swelled to enormous proportions and led to the prosperity of the world.
The inconvenient truth revealed by the start of the WTO is that mutual trade also has its limits. Pacifists were outraged: why fight when you can peacefully compete and trade? The SVO began, among other things, as a result of the fact that it became impossible to trade peacefully and compete. Influenced by this belief, after the end of World War II, Western Europe came under the comforting umbrella of the US military, both directly and through extensive participation in NATO. After the end of the Cold War, European national defense priorities faded even more. They focused mainly on the “war on terror”. And now European capitals face the risk that the US will completely abandon its old obligations to Europe. And analysts consider this possible after a hypothetical truce between Ukraine and Russia.
According to the report, in 2023 EU members may move to create an EU armed force. If this decision is taken, there will be a specific program to create a fully equipped and ready-to-deploy land, sea, air and space operational force, which will be funded to the tune of 10 trillion euros by 2028. The funding will go to the last reserves, accumulated by Europe in the last 20 years. The initial EU Rapid Deployment Force will be in place by 2025 with the participation of more than 20 EU Member States. To finance the new armed forces, the EU will issue EU bonds, which will be financed based on the GDP performance of each member country.
World politics, France and anti-Brexit
The report talks a lot about the fact that the militarization of economies is due to the “weaponization” of the dollar. The Russian asset freeze is just the first act of weaponizing the world’s reserve currencies. Bank analysts see the resistance of different countries against the dollar in a rather peculiar way. Many have speculated that the Chinese yuan could become the new reserve currency, but Saxo experts doubt it. Their suspicion is that China has so far shown no interest in giving up cross-border capital controls.
Recognizing the continued weaponization of the US dollar by the US government, non-US allies will move away from the US dollar and the IMF and move towards creating their own International Clearing Union and a new reserve asset based on the ideas of economist John Maynard Keynes. This is an original idea from before the Bretton Woods Agreements that made the US a world financial power.
The new currency, experts predict, will be indexed to a basket of convertibles in which crude oil has the largest weight. The currencies of the member countries will be exchanged for the new reserve currency at fixed exchange rates and adjusted according to the relative movements of the current accounts between the member countries. All member countries of the newly created monetary union will withdraw from the IMF. And countries like Saudi Arabia and Hong Kong will stop pegging their currencies to the US dollar. Thus, global economic cooperation within the G-20 will be divided between the G-7 countries and the BRICS countries. The bankers also focused on specific countries, predicting the nearest political scenario for them.
When French President Emmanuel Macron was elected for a second term in May 2022, he believed he could put France on the high road to reform. However, that was before legislative elections in June 2022, when his party and its allies lost their absolute majority in parliament, forcing Macron to compromise. Faced with strong opposition from the left-wing NUPS alliance and Marine Le Pen’s far-right National Union, the government is expected to have no choice but to fast-track basic laws and the 2023 budget and then announce Macron’s resignation. His resignation will open the doors of the Elysée Palace to right-wing candidate Le Pen.
Bankers believe that the situation for Great Britain is unfavorable. Liz Truss failed by cutting taxes and curbing consumption. But 2023 will also be difficult for Prime Minister Sunak as his austere fiscal program plunges the country into a crushing recession with unemployment skyrocketing. The final nail in Sunak’s political coffin will be the lingering budget deficit, which is also growing sharply as tax revenues shrink. They believe a Labor government will come to power in the third quarter, promising to hold an “Anti-Brexit” referendum around November 1, 2023. Backers of the EU will win.
Europeans should also expect price controls and other austerity measures in 2023, as almost all wars have brought price controls. In France, utilities will go bankrupt and be nationalized. This will be the result of a doomed attempt by Western officials to impose a price cap on energy from Russia. Perhaps something like a new National Board on Prices and Incomes will be created in Great Britain and the United States.
Controlling prices without solving the underlying problem will not only increase inflation, but also risk tearing the social fabric and the collapse of the European community due to deterioration in living standards, lack of incentives to produce and misallocation of resources and investment.
Economy, gold and food
Today, the data center infrastructure needed to serve the digital economy continues to grow rapidly, and these centers could consume about 20% of the world’s electricity in the coming decades. At the same time, the potential for energy growth is severely limited – on the one hand, by attempts to reduce the use of fossil fuels, and on the other, by the lack of alternatives such as wind and solar energy.
Against this background, analysts predict that in 2023 the owners of large technology companies and other technophile billionaires will be frustrated by the lack of progress in developing the necessary energy infrastructure that would allow them to make the necessary energy transition. Record funds will be invested in the new energy industry, and whether they will be successful, the bank’s analysts are in no hurry to predict. But they say gold will rally in 2023 after a difficult year in 2022, when many investors were disappointed by its inability to gain – even as inflation jumped to a 40-year high. It turns out that the key to holding gold’s potential is the market’s misguided consensus bet that inflation will be temporary. Some of the countries may consider the gold standard.
This is supported by the prediction that, come spring, China will decide to abandon its zero-coronavirus policy, touting an effective treatment and possibly even a new vaccine. Chinese demand will once again lead to a sharp spike in commodity prices, leading to a sharp rise in global inflation, especially against the backdrop of an increasingly weak US dollar. When it comes to food, many countries, including those in the EU, will have to drastically reduce meat consumption.
More than a third of the world’s crops are used for animal feed, and about 80% of the world’s agricultural land is used for grazing, some of which is former forest and even rainforest. This leads to a staggering loss of biodiversity. Along with other environmental impacts such as soil erosion and pollution of local water resources from both animal waste and excessive use of feed fertilizers. Globally, food production accounts for a third of the planet’s carbon emissions, and the use of animals for meat production is twice as polluting as crop production.
One of the report’s authors estimates that to reach the zero-emissions target by 2050, meat consumption would need to be reduced to 24kg per person per year, compared to the current average of around 70kg. So maybe in the near future the countries of the collective West will be feeding their citizens grasshoppers and other high protein analogues of beef and pork. And, of course, according to the old tradition, Russia will be blamed for everything.
Translation: V. Sergeev
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