Dear customers and partners,
I would like to wish to all of you and your beloved ones a happy New Year 2020 !
As for 2019, I’d like to join to my wishes an outlook of what can be expected in 2020, on the markets but also in the world. Instead of focusing on micro-economics datas, I chose to consider macro datas and develop a geopolitical analysis of the current changes in the world.
First, one of the most important expected data is global growth. Worldwide activity declined between 2018 and 2019, with a global growth sliding from 3,5% to 2,9%. OECD expects global GDP to stabilize around 2,9% in 2020, its lowest level since the crisis in 2008. IMF is more optimistic as they anticipate a growth of 3,4%.
Still about figures, the loan insurer Euler Hermes is planning on an increase of the global commercial trade from 1,5% in 2019 to 1,7% in 2020 but still far from the 3,8% of 2018. Trade war between the US and China is obviously to blame, inducing a lack of confidence from the consumers and companies. As a result the global demand dropped sharply. By the end of 2020, trade wars will have reduced global GDP by $700B (Bloomberg).
However, in a recent common declaration, China and the US said to agree on « phase one » deal to ease the trade war, which is a positive sign sent to the markets and the consumers for 2020.
Recession chatter may have ebbed thanks to record-high stock prices and positive hiring momentum, but stagnant wages, trade war uncertainty and shrinking corporate investment are big risks to the U.S. outlook. In the US, GDP is decreasing from 2,9% in 2018 to 2,3% in 2019 to a final 2% in 2020 (OECD). One of the strongest ally against recession is consumers high demand, it’s been working well lately and Trump would do anything to keep things that way.
Federal elections are in sight and Trump doesn’t want to leave the White House ; high in the polls, he’s facing numerous candidates but the opposition is counting on Elizabeth Warren to gain some votes and resist the Republicans. Warren made a name for herself when talking about breaking up big companies such as Facebook and Google which became too big to control and too powerful. Re-introducing antitrust laws is a hot topic in the US, after the Government lost its battle against Microsoft in the past and in a country where consolidation in the past decade was more important than everywhere else. Specialists talk about « antitrust reawakening », linking the gap between the richest individuals and the poorest people, basically the powerful and the rest, to the long period of consolidation and the lack of rules from the Government. Polls still give Trump president, again, but even if Warren is not elected, no doubts that her campaign won’t be useless in future national debates.
China, on its side, also shows some signs of weakness with a GDP of 5,9% in 2020 against 6,8% in 2017, 6,6% in 2018 and 6,1% in 2019 (IMF).
But what if China starts to buy local ? Many Chinese brands, especially makers of electronics such as Huawei and Xiaomi now perform at the same level as their Western counterparts. The quality gains and increased advertising budgets have led shoppers to recognize them as house-hold names. But amplified national pride is also playing a role in their growth.
For the first time, Apple, whose image was linked to a high and envied social status, dropped out of the Top 10 brands in China, Huawei being the number 1.
It’s also the same with cars and any manufactured products that China learned to make for decades when Western companies came for cheap production tariff and abondant and cheap working force. Now they produce the same products, cheaper, and with their own brands.
This could definitely have an impact on the global trade system in the near future, redefining the different markets policies.
We should definitely not forget about Hong Kong and Taiwan. Hong Kong have had the toughest year of its recent existence with permanent riots and protests, from the students but also the entire population, showing its faith in young independent political parties in the latest local elections by a record breaking participation rate for such elections. A slap for China. Independence is far from won, Xi Jinping will never lose Hong Kong, but his position is delicate as his own party is waiting for him to do a mistake to replace him and the world is watching him.
Taiwan will also vote for its new president this year but the situation is not as critical as in Hong Kong, and Democrats (fighting against unification with China and supporting Hong Kong protests) are, at the moment, at the highest position in the polls.
And what about the Euro Zone ? Also impacted by the commercial war between the US and China but also targeted by Trump who, unlike his predecessors, doesn’t consider that allies should always be treated as « good old friends » when it comes to trade matters, it suffers as well. In fact, Trump doesn’t hesitate to rise the tariff on goods he considers as dangerous competition for his domestic growth, or in retaliation to antitrust measures taken by France or Europe on US companies (GAFA for instance).
Brexit is one of the hot topics and has been so for the last 3 years now, with an uncertain outcome. In December, Boris Johnson won an important vote and can count on his majority at Parliament to deliver Brexit on the 31st of January. If the date seems finally certain, all the details of the deal are not decided / approved yet. So, even even if the UK leaves the EU on time, there will still be plenty of trade and law deals to negotiate and sign, maintening the doubts and uncertainty that weigh on the overall demand and economies.
Moreover, the strength of the EU will be stressed by Brexit. That will be a good test of resilience for the Union after loosing one of its most important member.
France’s president Emmanuel Macron is still trying to pass all the reforms he promised during his campaign, facing a long popular protest from the Yellow Vests, still active, and the longest strike in history from the rail unions, desperately fighting to keep their special retirement plans allowing them to retire earlier than the average worker and at better conditions. Social protest should last again in 2020 as the most important reforms are still to be voted.
In Germany, Merkel is more than ever in danger, even from her own party, the doubts regarding her health problems have led people think that she wouldn’t be able to complete her term ending in 2021. The growth is also decelerating, less than 1% in 2020 according to OECD, which is less than 2019. The national automobile industry, exporting all over the world with strong brands such as Daimler AG, BMW Group and Volkswagen AG, is facing a downturn of the demand in some key markets such as China, but must also reinvent its model by switching from oil to green energies in order to match the new trend and request from consumers.
VW, after the diesel scandal, radically changed its strategy in energy transition and is now betting on electric vehicle spending $50B to develop that technology for all the brands of the group, more than any other automaker on the market, with at least 70 electric cars in the pipeline. With two new factories in China in addition to the existing ones, VW will produce more cars annually than Tesla has sold in its entire history. But the demand, especially for electric vehicle, needs to consolidate or increase for that bet to work.
In the good news, Spain will finally get a new government after acting premier Pedro Sanchez persuaded a Catalan separatist party to help him take office for a second term. Esquerra Republicana de Catalunya will abstain in a confidence vote in parliament, giving Sanchez the numbers needed for a Socialist-led coalition. Spain has been without a proper government since Sanchez dissolved parliament in March for the first of two elections last year.
In figures, growth in Euro Zone should remain low, between 1 and 1,1% for 2020 and 2021, against 1,2% in 2019 (OECD).
Government bonds in Denmark, Germany, Japan, Sweden and Switzerland carry negative yields, meaning it will cost money for investors to hold them to maturity. A big question for fixed-income markets in 2020 is whether it could happen in the US, too. It almost happened in 2019 with a three-year low of 1,43% on the 10-year bond when investors piled heavily into US Treasuries. There are several reasons why that matters. First, the yields on these bonds help set pace for long-term borrowing costs throughout the economy, wether home loans or corporate debt. But they also reflect investor’s sentiments about the economy.
The FED cuts in key short-term interest rates keeps pulling down bond yields, those rates should remain at a low level in 2020. The central bank has been adding stimulus to the US economy in part because it’s worried about a slowdown in global growth. Meanwhile, the fact that 10-year bond investors are willing to be paid so little suggests they have little fear of inflation, which usually goes hand in hand with a strong expansion, according to Bloomberg. In Europe, the ECB declared that it would be ready to restart it’s Quantitative Easing campaign, with the same aim as supporting the economy and domestic demand.
Odds are that the FED might cut short-term interest rates again in 2020, but markets don’t believe in negative yields in the US before 2021, supporting one of the longest rally in Wall Street for stock markets.
After all those facts and figures, one question arises : would 2020 see the dusk of Western hegemonism ?
In the Middle East, Iran has successfully and creatively defended herself against the „maximal pressure“ from the USA and has kept her distance with the West European countries. Economically, the country has suffered from the US-sanctions, but she has now passed the biggest crisis. The country took the imposed problems as a motivation to improve the economical governance and to diminish the dependance from petrol. The report of UN-Secretary-General Guterres of December 10 saying that the UN, after an investigation in Saudi Arabia, cannot verify the US and Saudi claims that Iran was behind the strikes on Aramco in September, is a diplomatic victory for Iran. (See update at the bottom).
Syria has made further important progress in the fight against terrorism, in particular in the province Idleb. Moreover, the government and the army were able to utilize the partial withdrawal of the US occupying army in the north-east of the country. The reconstruction in Syria moves forward, Russian and Chinese enterprises will thereby play an important role. Hundreds of thousands refugees have come back. In short, as President Assad said in the interview with Italian Rai News 24: „[… ] the situation is much, much better […] and I think that the future of Syria is promising; we are going to come out of this war stronger.“
In the war of Saudi Arabia against Yemen, the strategic situation has completely changed. Saudi Arabia has lost the initiative and different Arabian and African countries have stopped the support for the Saudi army. The Ansarallah movement of the Houthis has made important attacks, in particular against Aramco, and the movement has now strong official relations with Iran.
The West and Israel are still trying hard to exploit the economical and political crisis in Lebanon and Iraq. However, the patriotic forces in both countries were able to keep a positive outlook of the situation and could avoid to fall into the traps.
Asia as a whole has already widely casted off the yoke of Western hegemonism. As of South America, the developments in 2019 show – despite of the coup in Bolivia – a movement to more independence which very probably will continue. It is reasonable to assume that this vague will also grow in Africa, in particular in Western and central Africa, due to the fight against terrorism and the beneficial influence of China and Russia.
Trump has won in 2016, based on his program of „America first“. Since then, it has become more and more clear that this program is in fact a program of an American national imperialism. Trump is not interested in a „Western“ perspective. A typical example and as explained are the US sanctions against numerous countries, even against traditional allies. This is a crucial change. Since the end of World War 2, the USA were constructed as a worldwide leading power. During the cold war, this has developed into the collective Western hegemony – including countries like Japan, Australia and others – with the USA as the undisputed leader. The emergence of an American national imperialism is a somewhat unexpected challenge for all other Western countries. Nevertheless, it is a logical evolution, provoked among other things by the declining power of Western hegemony and the appearance of China, the new Russia, as well as their strategic collaboration.
The traditional Western hegemonic forces have never accepted the election of Trump in 2016. They are very strong inside the US Democratic Party and in the US parliament in general, but also in Western Europe. With the impeachment and the US election in 2020, the fight between the both tendencies will reach a decision. This fight should be quite hard. The only logical outcome will be a victory of Trump; however, it is still to be seen whether this will be a clear victory or not.
Also for Western Europe, the influence of this fight will be immense. Concerning this matter, the UK is the most advanced country in Western Europe. After a struggle of 3 and half years, the population has given a clear mandate to the Johnson government to deliver Brexit. It is probable that now, where this central question is resolved, the development in the UK will be quite dynamical. The formation of a national imperialism will advance quickly. France also is rather well prepared for a victory of the American national imperialism; with the period of de Gaulle in the 1960s, she has a historical model.
On the other hand, Germany is the less prepared country. Germany is very anti-Trump. In 2016, polls in Germany indicated that up to 90% would vote for Hillary Clinton and only 4% for Donald Trump. The polls during the last years have clearly confirmed this rejection of Trump in the German population. Also, German Chancellor Merkel has been widely seen as a stronghold of the traditional Western hegemony and against American national imperialism. However, the situation is changing. Merkel has lost her authority and is now rather isolated. The awareness is growing that Trump does not stand for a parenthesis in history, but for a fundamental change. The impeachment is not judged as positive as one could await. Moreover, the German industry, especially car industry, would probably like to have better relations with Russia to overturn the weak demand we’ve seen higher. The US sanctions against Nord Stream 2 will only reinforce the will in Germany to become more autonomous.
But while national imperialism has a long tradition in the UK and in France and will probably be accepted without too much of resistance, in Germany, national imperialism is not popular, for historical reasons. Therefore, one may predict that Germany will have a big debate on her political identity; even a profound crisis is possible. This is certainly complicated by the fact that Merkel has to be replaced and that there is at the moment no convincing successor. However, Germany will be able to find a way for playing a positive role in the future world.
Western hegemony seems then to be replaced by national imperialisms. If we think about global trade and economy, it is obviously a problem that would request unprecedent measures.
When I wrote those lines, there were some events that couldn’t be expected ; first, Iran was accused to kill a US contractor in Baghdad in a rocket attack and injure several others in the last days of December. There are still 5’000 American troops in Iraq, however the number of civilian contractors is far more difficult to track. In response, the Trump administration agreed on airstrikes on an Iranian-backed militia group in Iraq and Syria, killing at least 25 people.
A series of protests followed in the highly secured Green Zone in Baghdad, damaging the US compound (that includes the US embassy) in the area. Pro-Iranian militiamen and their supporters gathered and protest for a few days there, Trump blaming the Iranian regime once again with the bad memory of the US embassy attack in Iran in 1979.
The biggest strike finally happened on the 3rd of January when news broke that Trump, without consulting the Congress, ordered an airstrike on a convoy. Nothing new here, except that the target in the convoy was General Soleimani, the highest general in command in Iran, a powerful man reporting directly to Khamenei instead of the nation’s president. With him down, it’s a serious slap and attack on the Shah’s regime. As expected, Iran promised severe retaliation even if options appear narrow facing protests at home and US sanctions, to what can be considered as a declaration of war, sending the barrel above $70.
Trump always criticized his predecessors for starting conflicts in the Middle East without being able to pull out of the countries in time or without permanent damages, with a « Bring them home » campaign, a promise to bring all the American soldiers still in the Middle East back home. And that’s what he started to organized and do, by declaring that he would stop supporting the Kurds and remove his army from the area in 2019. That was totally unexpected and everyone started to think that, for good reason, that Trump would keep his promise to desengage the US Army from several conflicts around the globe, leaving the battlefields clear for Russia and its allies. And that was precisely the subject of my article above.
But the death of General Soleimani will certainly mark a turning point in Trump’s presidency. For now, Trump is showing to the world and particularly to the US people in those pre-election times, that the US are still a great and powerful nation that no one can threat, playing the imperialism card. That’s what he did by only tweeting a picture of the US flag with no text after the announce of the strike. It’s highly unlikely that the US will end up invading Iran like they did with Iraq in the past. However, the conflict between the most powerful army in the world and a disorganized but over-armed army (and strongly backed by Russia and partners) will definitely happen in different ways that it’s still difficult to predict, probably in Iraq or Syria. A US Senator warned Iran that if they « want more » they should be prepared that the US could easily target the oil rigs inside the country. Trump wanted to put his army on rest, he just stepped into something he doesn’t control anymore. Future is impossible to predict, and this conflict that has been rising for the past two years even less, but what is certain is that the « old order » of a bi-polar world is more than ever back in everyone’s mind, this time involving satellite countries instead of face to face confrontation.
One particular stat illustrates the increasing tensions in the world ; between 2017 and 2018, the weapons / arms industry growth product rose by 4,6%, with a total of $420b of sales made by the top 100 companies of the sector, China’s companies excluded as they don’t publish any figures.
Sales of arms and military services have increased by 47% since 2002.
The final word, on a positive thought, would go to one battle that the whole world needs to face as one ; global warming. Despite the several failures of the different COP meetings to prepare the energy transition and limit the global warming effects, each country, even China using tons of coals every day, is aware of the challenge ahead of us, and a lot of progress has been made even though a lot still needs to be done. Humanity has proven to find unity in the past when a common aim has to be reached by all means ; there can’t be a greater goal that saving our home, planet Earth !