Opinion: the making of economic predictions may be a mugs' game, but here are some trends to watch out for in 2020

Both economists and non-economists often err by assuming that there is little else to economics than the science of making forecasts. For what they are worth, then, here are some informed predictions. There may be a world recession in 2020. There are geopolitical vulnerabilities (working through the oil price). The UK will leave the EU in a legal sense, but it is unclear how far the long term relationship will be settled within 12 months. Stormont is likely to be restored, but that will only be the beginning of the hard work. Publication of the cash-for-ash inquiry report will offer an once in a generation chance to re-model our machinery of government.

The making of economic predictions is a mugs' game. A year ago, I felt 2019 was  likely to the year when the world economy went back into recession, but that didn't happen. Admittedly, when we get the final versions of the quarterly GDP data, we will see how close the UK economy came to a technical recession in mid/late 2019. Similarly, the German economy appears to have been skirting the edge of recession.

Chinese whispers

Most of the vulnerabilities which existed in 2019 will still be in place in the global economy of 2020. If the US-China trade war worsens, that could be the tipping point. Trump’s other trade wars could worsen: for example, there could be higher tariffs on EU exports to the US. If there is a lasting deal in terms of US-China economic relationships, that may turn out to the similar to the nuclear deal with North Korea, which is more decorative than substantive.

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From RTÉ Radio 1's Morning Ireland, Irish beef exports to China are set to increase ten-fold due to rising demand

The political temperature seems to have come down in the Korean peninsula and the eastern Ukraine so the greatest geopolitical threat may be in Straits of Hormuz. A miscalculation between the US and Iran could send trade down and oil prices up.

Increased longevity and decreasing birth rates

2020 will be the first year in human history when there will be more people alive who are over the age of 30 than under that age. Two of the greatest social changes of our times are increased longevity and decreasing birth rates. The Beijing government will celebrate the achievement of its plan to achieve "modestly prosperous country" status for China by 2020. More electric cars will be sold, but they will still be only 3% of the total. Notwithstanding worries about carbon production, 2020 will be a boom year for airline production, including the Airbus A220 (the former Bombardier C Series plane).

Brexit

The UK will leave the EU at the end of January 2020 and the transition period then begins. I'd say the odds of agreeing the long term relationship with the EU27 by the end of the year are no better than 50/50. British prime minister Boris Johnson now has the advantage of a considerable majority but the EU27 will adopt a hard negotiating position. As ever, Johnson is very hard to read. Will he make sacrifices in terms of the UK’s position on fisheries, industrial policy and regulatory alignment with the EU in order to get a quick free trade deal?

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From RTÉ's Brexit Republic podcast, former UK ambassador to the EU Ivan Rogers looks ahead to a difficult year of EU-UK trade talks

Stormont

A Stormont restoration is now more likely than not. The ground has shifted because both the DUP and Sinn Fein have had recent electoral disappointments, UK austerity is coming to an end and Brexit is being settled. But, if it happens, that is only the start of the hard work. The situation is not the same as that described in Labour’s Liam Byrne’s infamous letter to the incoming Cameron government in 2010: "I’m afraid there’s no money".

There is actually quite a lot of money in the Northern Ireland block grant but, unfortunately, there are some enormous unfunded spending pressures. In terms of capital spending alone, it is established that £4.5bn is required: £1bn to clear waiting lists (as estimated by the Permanent Secretary of the Department of Health in Northern Ireland, Richard Pengelly), £1.2bn to fill potholes and restore condition of crumbling roads (per Northern Ireland Audit Office) and £2.5bn for water treating and sewerage infrastructure during 2021-27 (per Northern Ireland Water). Annual unfunded "needs" in terms of current departmental spending will be probably at least £500m. 

In short, there is big financial black hole and simply having local ministers in place will not (at least in the short or medium run) do much to close that gap. Some of the current challenges came into being because of decisions taken (or decisions not taken) during the time when devolution did operate before January 2017. One might hope a Northern Ireland health minister would accelerate the course of structural reform, but that reform is going to painful and unpopular (including in terms of constituency interests). We’ll see what happens.

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From RTÉ Radio 1's Today with Sean O'Rourke, an interview with Sam McBride, author of Burned: The Inside Story of the 'Cash-for-Ash' Scandal and Northern Ireland’s Secretive New Elite

The Renewable Heat Incentive Inquiry (AKA the "cash for ash" inquiry) will publish its report about the cash-for-ash crisis. That inquiry began in November 2017 and this has gathered more than a million pages of evidence. Whatever Judge Patrick Coughlin and his fellow panelists Dame Una O’Brien and Dr Keith MacLean conclude about the behaviour of various MLAs, Special Advisors, consultants and Permanent Secretaries during 2008 to 2016, this report gives us a once in a generation opportunity to re-model how government is done in Northern Ireland.


The views expressed here are those of the author and do not represent or reflect the views of RTÉ