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By Dr. Jim Leontiades
Cyprus International Institute of Management
Who can predict what lies in the year ahead? Could anyone have foreseen the Trump presidency one year ahead or the fact that Italy’s prime minister would be ousted by a party headed by a professional comedian? I don’t think so. But to a larger or lesser degree most corporations try to anticipate in order to plan.
Here are some possibilities for the New Year.
Turkey: Turkey’s civil strife will worsen in 2017 as will its relationship with the European Union and NATO. Erdogan has been steadily moving the country toward a more religious, Islamic orientation. However, there are millions of Turks who have embraced a Western mentality. In the centre of major cities such as Smyrna it is difficult to see even a head scarf. There is a growing gap between these and the rural, more religious, less educated population. This secular/religious split will become more evident in 2017. There will even be talk of civil war. Another source of unrest are the Turkish Kurds which make up 25% of the population. Recent Kurdish military success in Syria and Iraq has provided their compatriots in Turkey with renewed confidence.
Trump Trade: President-elect Donald Trump’s pronouncements during his campaign, together with his choice of political advisors and appointees, heralds a new area of turmoil in relations between the US, Europe and China, particularly in international trade. The main impact is likely fall on trade with China. Relations with China will deteriorate as Trump proceeds with the promised trade restrictions against Chinese imports. The fact that China holds some 1.2 trillion dollars (6%) of American debt will not prove a deterrent. Where else could China find a safe haven for its massive savings? Bond markets in Europe are too thin. They do not provide the depth of liquidity required to accommodate such a massive transfer of funds. Japanese bonds are not an alternative, nor are Russian, both for political as well as economic reasons.
European Union: In the coming year, the EU will continue to move from crisis to crisis. Despite periodic statements that growth has “turned the corner”, economic growth for the EU and particularly the eurogroup remains unsatisfactory. Mario Draghi will terminate his quantitative easing programme, well short of his goal of 2% inflation. 2017 will see increasing criticism of present EU austerity policies. This is perhaps the single major reason why anti-EU political movements are on the ascent and will remain so. In France, Italy, Holland and Austria, political parties which advocate leaving the EU are gaining. Prime Minister Matteo Renzi’s defeat in the recent Italian referendum sets the stage for further Eurosceptic gains during 2017.
Grexit: Last year, I predicted that the economic problems in Greece would continue and that Alexis Tsipras’ government would fall. I was wrong then but I repeat this again for 2017.
The Euro: In 2017, the Euro will reach parity with the dollar.
Cyprus Economy: Cyprus will experience another year of satisfactory GDP growth, but less satisfactory in terms of employment. Thanks largely to unrest in the region, tourism will again provide a major economic boost in the new year. The country will meet and possibly exceed 2.9% annual GDP growth. Unfortunately, now that the Troika has left our shores the government will give way again to public sector unions – undermining the good work of the Finance Minister.
Transatlantic Split: 2017 will see a further distancing between Europe and the US in terms of economic development. This divergence puts to the test two widely differing views on the economy. The ultraconservative European (German) view stressing low debt at all costs will contrast with the loosening of fiscal policy in the US. 2017 will see a widening gap between the two regions in terms of GDP growth and interest spreads.
Refugees: 2017 will see a return of the refugee crisis. The recent riots and strife on Greek and Italian islands clearly demonstrate that their refugee camps are not a solution. The number of refugees making their way across the Mediterranean will rise significantly. The prime minister of Turkey will back up his threats by allowing some refugees to leave for Europe. Cyprus will attract increased attention from those fleeing Syria.
