Influencing events for 2018
2018 and beyond will be more difficult to navigate and a certain amount of deft handling and better execution will be required
The year 2017 was an eventful one.
Here is a recap of those events that I believe will have an impact on the coming months:
10. Britain invokes Article 50 of the Lisbon Treaty: Britain has until March of next year to negotiate its “Brexit” from the European Union. The tone and shape of that discussion will influence the path of global trade for decades.
9. Synchronized global growth: 2017 was the first time in 10 years that the global economy grew (3.5%) in synchronized fashion. Global central banks have already begun tightening and will continue to shrink balance sheets in 2018 and beyond. While tantrums may be a thing of the past, the world will no longer be awash in liquidity. Good news, bad news.
8. Saudi Arabia’s reform: You may read reform or a concentration of power in the actions of Crown Prince Mohammad Bin Salman al Saud (MBS), the de facto ruler of the Saudi kingdom. There is a genuine chance that we are at the beginning of the end of the Saudi export of Salafist terrorism (in their own self-interest). Taken together with the fall of Mosul and the mortal wounds to the Islamic State, we may be able to look forward to a future with far less terrorism.
7. Donald Trump: Trump’s ascension to the American presidency was the ultimate weathervane signifying that the liberals had become entrapped by their jargon and distant from the country’s citizens. It was a quixotic year for Trump, oscillating between the abrogation of trade deals and the Paris climate accord on the one hand and greater interactions with North Korea and Middle East on the other. The mutual belligerence with North Korea risks a mistake of “nuclear” proportions.
6. Xi Jinping’s rise: President Xi of China appointed himself for another term, declared himself “core leader”, amended the constitution with his thoughts and got his picture hoisted alongside Mao Zedong’s and Deng Xiaoping’s at the Great Hall of the People. The full implication of this concentration of power at a time of great economic and military strength in China is unknown but a potential cause for concern.
5. Street protests in Iran, tensions in the Middle East: Protests in Iran caused by simmering disagreements between reformers and hardliners, together with Trump’s recognition of Jerusalem as the capital of Israel, is leading to tension. Oil prices have risen to their highest level in two years, which will likely have an impact on oil importers like India.
4. Europe flying the liberal flag: Emanuel Macron’s victory in France and Angela Merkel scraping through in Germany signify some hope that the post-War liberal flame is still alive. If enlightened liberalism is to combat populist-nationalism, the spark may have to come from Europe.
3. Dominant companies dominate: Mirroring the concentration of political power around the world, a few companies like Apple, Alphabet (Google), Microsoft, Amazon and Facebook dominate global commerce. For the first time in more than two decades, no oil company is among the top 5 in world market capitalization. We might see one of them cross a trillion dollars in market capitalization in 2018.
2. State elections in India hold a clue: State elections in Punjab, Uttar Pradesh and Gujarat in particular have interesting implications for India. On the one hand, the elections demonstrated that a clear strategy and an organized field force, which the Bharatiya Janata Party (BJP) had, is a good formula for victory. On the other, it showed that the so far hapless Congress is the only real national alternative, and, if it begins to get its act together, it could effectively combat the high on rhetoric, modest on delivery performance of the BJP.
1. India’s reform orientation but shoddy implementation: The good news since 2014 has been that the BJP has mitigated egregious corruption and been willing to implement reforms (even if the ideas have come from others). The ill-advised experiment of demonetisation and the hasty, stutter-start implementation of the goods and services (GST) tax have cost India precious time and timing (when oil prices were low). GST implementation was always likely to have teething problems but the implementation was poorer than the low expectations. Bankruptcy law reform has progressed better but the capacity of the system to handle the pipeline in a fair and expeditious manner will be tested in coming years.
Connecting the dots, world trade will likely get more protected, bilateral and frictional than before; political power in many countries will remain concentrated, risking misadventure or error, and commercial power will stay concentrated with a few companies, making it more difficult for mid-sized companies to fight for resources. The only good news is that we may be seeing a peak in global terrorism.
At its stage of evolution, India would have been a greater beneficiary of freer trade, more open systems and a diversified commercial base. India may also not benefit much unless regional terrorism dissipates as well. For these reasons, 2018 and beyond will be more difficult to navigate and a certain amount of deft handling and better execution will be required. Caught in the compulsions of retaining power in 2019, the incumbent government should not lapse into populist rhetoric, fan the communal flame, open the fiscal gates and delay structural reforms.
P.S.: “Indeed the hereditary gift of prophecy will go to the grave with me”, said Nostradamus.
Narayan Ramachandran is chairman, InKlude Labs. Read Narayan’s Mint columns at www.livemint.com/avisiblehand
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