The year 2016 has ended, for some a terrible year where we have lost dozens of famous people. From football legend Johan Cruyff to legendary singer Leonard Cohen. People who were not only great in their profession but who also influenced the world around them. Take Olympic champion and anti-war figure Muhammad Ali. A hero and inspiration for many who showed us we should never give up on our dreams despite our social background, religion, or race.
2016 has also proven to be a year of political turmoil. Many people thought a Brexit or the election of Donald Trump as the President of the United States of America could never happen, they did. While the consequences of these events are still unknown we have to prepare for them.
But 2016 also taught us that the Brexit-supporters and the ones who elected Trump are real people with real worries. Some of us keep singling them out as angry white men but both their characteristics and fears are more diverse. They are not a tiny group somewhere in the margins of our societies. We have finally started to discuss how we can listen again, but if this will actually result in change is doubtful. Framing and name calling remain to be the norm. We can shout all we want (specially from the left) that the Brits are crazy for leaving the EU, that they do not know what they are doing, and that the Americans are fascist. But no matter who is right and who is wrong, our naive shouting will not change anything while a new year with new opportunities is coming.
Although we wouldn’t mind to spend the rest of this article writing about 2016, we are here to discuss 2017. We just started but we would like to present the issues that we expect to be key during the New Year. Here’s our Top 5 list:
- Rising Populism
Populism won’t stop. In 2014 when UKIP from the United Kingdom and Front National from France conquered a lot of seats in the European Parliament, we kept underestimating their popularity. Their momentum continued in 2015 and 2016. There is no reason to think it will stop now with many national elections coming up in 2017. Despite the success of populism, their popularity has not decreased. This has been for a large part due to the fact that people are still disappointed in mainstream political parties and the ‘elite’. They mourn the lack of clear political leadership. This underlines the need for a revolution within our establishment and mainstream ideas themselves.
Also specific political developments are boosting populism. While Brexit has already happened, the EU has not become more democratic and there are no political announcements that would make us think real change will happen in the 2017. While our European leaders should grab the moment from Brexit away, they are not, people’s doubts in the EU remain to be addressed. Another important example is the refugee crisis. The Syrian refugees are not coming in large quantities anymore because they are already in. The problems are however not over but merely starting. There is no clear effort that shows how our governments are planning to integrate them or what can be expected when the war in Syria is over. The threat of terrorism is growing, tensions are almost touchable, and all political agenda’s focusing on these themes just seem to burn the few bridges we have instead of building new ones. The refugee crisis, combined with the lack of integration, will again be a hot topic in 2017 boosting populism. Certainly if this problem is not accompanied by clear political guidance.
Another hot topic will be national elections. The coming year will be full of elections in important countries with strong populist parties. The French Presidential Elections will probably see a battle between Front National leader Marine Le Pen and leader of Les Republicans Francois Fillon. Although it is unlikely Le Pen will win, it will be a major boost for her making it to the second round [and beaten the left PS] and it moves France further to the right. A second important election will be the Bundestag elections in Germany. The biggest country of the EU was a long time exception on the rule of upcoming populism. However, the refugee crisis mainly hit Germany and changed this. The AfD has a reasonable chance to become the third party of Germany which might upset German politics even further but might also influence German leadership [as it already does with Merkel being forced by her own party to follow a more conservative line towards immigration issues and other ‘liberal’ stances]. The third very important vote will be the parliamentary elections in the Netherlands. Geert Wilders, leader of Populist Party the PVV, is leading in the polls by far. The last months his lead increased tremendously. He might win and become West-Europe’s first real populist leader since the end of World War II. It is true that his win doesn’t guarantee that he will govern, but his critical stances towards Islam and his euroscepticism will completely change politics for one of the EU’s founding members.
Wilders, Le Pen, and the AfD all have something in common. They have a chance to exchange their rising popularity for actually political leverage just as the Five Star Movement will have in Italy after getting rid of Prime Minister Matteo Renzi in a Referendum. UKIP and Trump have preceded them while the FPO came close in Austria’s presidential election. We can speculate about what will happen. Will these parties fail or be successful? But too long we opted for the first choice. We refused to change and see that people on the ground are missing a connection to politics, they miss some form of identity. This is more clearly expressed in another form of populism; nationalism and regionalism. Will Scotland go for a new Referendum? Will Catalonia be independent? What about Legia Nord or another nationalist movement? Will more countries announce referendums on leaving the EU? What about the Belgium problem? All these movements show one thing. People want to be represented and not just as a number in a budget. Feeling lost in society will push you to the extremes [which also happens in many Islamic communities these days]. And if our mainstream parties refuse to address these issues, forget to represent real voters, then it will be a difficult year for both the EU and our political establishment trying to maintain control.
- EUR/USD Parity
For many it’s a no brainer and they have been talking about it for a couple of years. Others however, denied the possibility while refusing to look at the changing numbers and rates. Personally, we have been following it since 2014 and we believe that the Dollar and Euro may become 1:1 sometime this year. We take into consideration the fact that the European Central Bank keeps its low rates to protect Bonds yield rate and we simply assume the American FED will continue the monetary policy [or will speed it up] as announced by the end of last year.
The EUR/USD Parity has been discussed and expected before. The last year this trend was mainly caused by a falling Euro. We can all remember the ECB’s decision to buy more bonds and keep the Euro attractive. However, the reason we think it happens this year is because of the election of Trump. His economic plan might mean inflation. The new American President claims to favor a form of protectionism, wants to start an economic war with China, and announced to lower taxes and conduct large public investments; this might drive up prices [thus inflation] and lead to a beneficial monetary policy for parity. For the reason of growing prices, the FED could opt to faster then expected increase the very low rent of between 0.25%-0.50% to control inflation. This will make investments more attractive and the Dollar more valuable. The ECB on the other hand, mainly due to our populism that wants to undermine the European project, will try to keep the rate of the Euro lower. Two forms of populism but two different monetary approaches.
This all might help ensure that final step bringing us closer to EUR/USD parity. Before the US election, the Euro was worth 1.1USD. After the elections the rates first grew but have since then dropped to 1.04. No matter how Trump will do as President, or our own national elections turn out, it is certainly not unlikely that for at least a short while we experience parity between the two currencies or even that the Dollar chases the Euro in value. Our products might be more attractive in pricing than the American ones but in reality our Euro is losing its value. It will be less attractive for investors to have Euro-based holdings which might have further negative consequences. For now, think again about shopping in New York. It most likely will cost you some extra money.
We already discussed Trump before but he certainly deserves his own category. Trump will officially begin his term by 20th January but what happens after that is unknown. Some of his “iconic” policies like building The Wall, registering Muslims, deporting 5 to 6 millions of illegal immigrants, repealing Obamacare, or impose a tariff on all Chinese good sales could seriously affect the whole world in a negative way but we simply don’t know if they will happen.
The many negative consequences of a Trump presidency have been discussed widely. Let’s be a bit more positive. Some experts claim that Trump actually might benefit from current national and global trends. Take Obamacare, it is said Trump might repeal it. The upcoming president however, has been a lifelong supporter of national healthcare securities. Obamacare seems to offer that, so why repeal it? A healthy family that was formerly uninsured might now be covered for expenses they didn’t have before. This costs money and is a logical risk of insurance. But due to political opposition Obamacare has never been perfected. The lack of insurer competition has spiked premiums for individual clients. That healthy family is not just forced to take a risk with paying premiums but it pays a huge chunk of their household income on them. Far more than we do in Europe. Families have to cut their expenses instead of saving money for other economical boosting activities while Obamacare is intended to decrease the financial burden of health care expenses and worries. Trump might ‘lessen’ Obamacare by limiting certain obligations, reforming the package, and most of all boosting insurer competition. In this case he probably won’t change that Americans have to be insured. This might dramatically drop the premium rate for individual households who still have Obamacare but might have the feeling the healthcare burden has been lifted. So will it be Obamacare or Trumpcare? It is most likely a semantic discussion but not an unlikely one.
Another important trend is the increase of labor costs in Asia. Already before Trump was elected, American [and European] companies were moving out of China and South East Asia because it was not profitable anymore to stay [or they didn’t expect this trend to change]. The region is characterized [with notable exceptions] by a status quo in terms of progress and sometimes even decline. At the same time, the USA has experienced some economic boosting developments within its own borders. Washington has started to produce oil and gas more close at home in the Gulf of Mexico and Alaska instead of depending on the Middle East. This policy might result in acceptable prices, job opportunities, and entrepreneurship for both the down-, mid-, upstream sectors in the energy industry. The return of companies to America, an improving energy industry, and the end of an economic crisis have already made sure that America is upgrading many of its ports [and boosting some activities in their direct hinterlands]. America has become more attractive to business and investment but a lot remains to be done. One of the main things missing to make maximum gain out of this development are large infrastructural projects around the ports and in the rest of the country connecting all layers of society to the important economic progress the USA is making. The economic upturn can be boosted in this way and countless of laboring or risk-taking Americans can learn and benefit. If it also leads to the inclusion of the SME’s and can be an excuse to challenge the centralization of economic activities then it might result in a very beneficial economic situation. The infrastructure projects are already announced by Trump so who knows.
But this is all economics. What happens to the trade unions Trump always said to have been a fan of? His Republican party certainly is not. What happens to America’s foreign policy? Trump is publically flirting with Russian President Vladimir Putin which undermines NATO’s security efforts and seems to break down the Western alliance from inside. Without the USA there cannot be a believable NATO. What will happen to the Middle East where Trump announced to be Israel’s best friend and stop dealing with countries as Saudi Arabia if they don’t give America more in return. What happens in Asia where on the one hand Trump announced to battle Chinese economic policies but on the other hand threatened to stop supporting American allies such as Japan and South Korea. Trump seems to aim for an isolationist course, just taking on board the willing [and paying]. Who will suffer from that approach will be a question we can only start answering later on.
In short, many people will say Donald Trump will fail miserably as President while others claim that he will the greatest president America has ever seen, we’ll just have to wait to see but 2017 already looks promising.
The 2nd largest economy according to the IMF and the world leading exporter in 2015 according to statista, will surely be a country we will talk a lot about in 2017. One thing that makes us more confident about this is the fact that the Chinese Yuan is now part of the IMF reserve currencies. This shows that the currency is seen as a reliable one probably due to the country’s continuously growing economy. Trust is important, and China has been given it, regardless of the fact its economic growth might change as many experts believe and which we see in the graph blow. But the criticism may be justified. Another reason why the Yuan has been given its new status are the Chinese massive investment policies across the globe. These investments might disguise the lack of investments and growth within China itself by showing that there is still capital movement. Regardless, China owns now a lot of important companies worldwide including many monopolies or companies being run in oligopoly alike markets. The fall of the Yuan might affect a lot of countries. Trust is therefore required but will it be enough?
By October 2016, the U.S. owed to China roughly $1.115 Trillion, a huge number that has only been reduced slightly due to a changing rate for the Yuan. Regardless, this amount of owned debt is kept so China can keep their currency competitive in comparison with the Dollar. Trump, [already the man of 2017 apparently], will play here a crucial role as well. During his campaign he mentioned to disapprove of China’s “Trade supremacy” and accused Beijing of manipulating the Yuan. Trump should be careful how he acts with China because one bad move and all the debt China holds against the USA can be used as a political weapon and sold off in a phased way. This will devalue the Dollar to worrying extent.
If economic warfare is to be expected Trump has to play it smart. He can therefore better start focusing on making use of certain global trends, as mentioned under point 3, quietly convincing major American industries to come back and ensuring other investors to take a bit of risk in America. An American economy having experienced some years of real improvement [nationwide] is better capable to deal with China then it is now. An actual economic war might therefore be more likely when we discuss Trump’s re-election as president of America.
Always important. Also in 2017. Last year we started to see and feel the upcoming social and economical revolution that technology will bring in a near future. These are not just any developments but improvements that can radically change the economy as it has been for decades, centuries even, and how we will address these themes in the future. Think about the development of the electrical and self steering car, think about online companies such as Uber and Air B&B, think about renewable energy projects and even Elon Musk’s space program. They all have the potential to radically change our economies, our ways of life, and how we interact with each other.
Regardless, what we find even more revolutionary but people rarely seem to talk about, is the progress that we make in Artificial Intelligence (AI) itself. It is underlined by some of the technological examples made above but if offers a wide range of opportunities. One specific development in AI, invented by MIT, has already passed the Turing Test which tests if humans can distinguish the AI-example from another human. If this process continues it might mean robots will be more applicable to use then in merely factories. We can again look at the transport sector with self driving cars but also computers and machines taking over very precise jobs, from surgeons to bus drivers, it is all not unrealistic anymore. Large public investments, such as might happen in the USA, and increasing cooperation between governments, industries, and research partners for example [as is already increasingly happen under so-called PPP-agreements in many Western societies around] might make 2017 in a year to never forget. This will imply new forms of labor and doing business.
However, the technological revolution might need limits. Yes there will be other jobs for humans but the balance might be negative. The year 2017 will be characterized by discussions to overcome these problems. If not addressed, it might increase worries about unemployment, the universal basic income, and the benefits of technological progress for humanity. Technological progress is not bad, obviously, but we must take it gradually and think about the consequences as we have always down. Long-term investments are necessary, people need to be prepared, and 2017 might be the start of a new era for society and economy.
The key word of 2017 will be Uncertainty [and a little bit Trump]
If we have to pick a word to describe the upcoming year it would be uncertainty, this uncertainty is caused by many events that occurred in the past year and might be strengthened in the new one. From Brexit and Trump to upcoming national elections and possible economic struggles and wars. 2016 will have lasting effects on 2017, that is for sure, the problem is that we don’t know how or what. An even more important question is what are we going to do? What is our ‘establishment’ going to do? Will 2017 be the year that our mainstream leaders and parties keep refusing to change and therefore capitulate to populism? Or are we also going to see a revolution from the left? Or at least the beginning of it? The main lesson from 2016 will be that people want change. The expectations for 2017 as described above give the momentum to really offer change so we can all keep living in prosperity no matter where we come from or who we are. Otherwise the political momentum might be grabbed by right wing parties, as they are already doing, and the consequences of that can be more worrying. We need to get out of our ivory towers, our bubbles in which we enjoy the comforts of modern life, and start to look around where we will see a lot of our people being neglected, being fearful, being left on their own and having no one to listen to.
In short, 2017 might be characterized by either fearful voters who desperately hold on to what is not more, or it might be the year of real and necessary change. If 2016 was used by rightwing parties to directly address specific sentiments among worried voters, it is possible for leftwing parties to use a similar approach in 2017.
Luís Carvalho, Economics Student and proud 2015 Graduate of democracy
Tjeerd S. Ritmeester, political and economic researcher & editor and proud 2015 Graduate of Democracy
Disclaimer: This Post reflects solely the author’s opinion it does not represent the whole platform