Clem Sunter

2016: The flags to watch

2015-12-31 10:30

Clem Sunter

One of the critical characteristics of being a good leader is to be ahead of the crowd in recognising the events and trends that can really change the game. Here is my pick of the potential game-changing flags to watch in 2016.

The oil price

If the oil price goes below $30 a barrel, Saudi Arabia and other national oil producers could face economic ruin and so could the companies in the US that have invested heavily in fracking. I give this possibility a 50/50 chance at the moment since global oil production has not come down in sympathy with price and demand is declining due to the unseasonal hot weather and China’s slowdown in economic growth. This is good news for the inflation rate in countries that buy oil but bad news for the gap created in the global economy by the financial demise of the oil producers.

Besides oil, of course, the price trends of all major commodities in 2016 should be kept in mind as an ongoing flag of how well the real global economy is performing.

Global temperatures, floods and droughts

A key statistic to look out for is whether 2015 goes down as the hottest year in the recorded history of the world. The fact that in the northern hemisphere the feeling is that winter is feeling like spring, and in some places even summer, suggests a high probability should be given to this being the case. The recent climate change conference in Paris turned out to be a cop-out as soon as the US made sure that the final agreement could not be treated as one having legal status.

Perhaps we are now in extra time in the game to combat climate change. The floods currently happening in the UK, the US and other countries together with the droughts in South Africa and elsewhere could be part of the new normal. Extreme weather events may become so much of a routine in our daily lives that defence measures against them are increasingly perceived to be as important as military strategies and action against human enemies.

2016 may go down in history as the year that Nature emerged from the shadows. Flood defence systems and drip irrigation are the weapons of the future.

The US Federal Reserve Bank

As I said in my last article, the US Fed with its small interest rate hike has indicated that we must start moving away from a world awash with easy money. This is all very well but governments everywhere have got used to borrowing at exceptionally low interest rates. Just one figure says it all. If the annual cost of borrowing goes up by 0.25% for the US government, then they will have to fork out an additional $45 billion in interest payments on the national debt of $18 trillion. Where will they cut the budget to afford this or will they just borrow even more?

The next move of the Fed in 2016 will be the fascinating one, given that it is doing the exact opposite of all other central banks in the world who want to keep the money tap full on.

The Chinese economy

The principal driver behind the disappointingly slow recovery in the world economy is the soft landing of the Chinese economy. Should it turn into a hard landing where the Chinese economic growth rate falls below 5% per annum, then even the US may face another round of economic hard times. Unfortunately, there is no other developing economy that can take up the slack in 2016, although India is tipped to replace China as the next economic miracle in the longer term.

The war in Syria

Much more is at stake than military developments in Syria. The question is whether some new model is forged which offers hope to the population of a lasting peace and the rebuilding of their shattered lives. A diminution in the number of migrants seeking a new life away from the war, as well as the number of terrorist attacks on European and American cities in 2016, is directly related to an alternative, positive vision for the future of Syria being created and implemented. The war in the short term may result in victors and vanquished; but this is nothing compared to the restoration of the ordinary ambitions of Syrian families for their children to prosper through getting decent education and pursuing normal careers.

Vladimir Putin

Russia’s annexation of Crimea and the imposition of sanctions on Russia by America and Europe may have been pushed aside by other news dominating the headlines. Yet in 2016, these issues could return to the centre of the stage in light of the deterioration in the Russian economy and the low price of oil. The Russians are angry and Mr Putin is a strong leader who wants to restore the superpower status of the nation. The breadth of his territorial ambition on his Western border must be watched closely, as must NATO’s moves to contain him. Both sides are nuclear-armed.

The American presidential election

Donald Trump is still leading the Republican race but has not yet been chosen as the party’s official candidate. Ted Cruz is there in the background. Hillary Clinton seems to have the Democratic nomination in the bag. My bet is that she will become the next US president, whoever is chosen by the Republicans. The campaign on both sides is going to be memorable for its insights on current American culture.

A global pandemic

In 2015, many people thought Ebola would spread more widely than it did. The threat remains that some virus or bacteria, perhaps a multi-drug-resistant one, will emerge somewhere in the world and take off like a wild fire. 

The municipal elections in South Africa

The results of these elections will indicate to what extent all the controversies of 2015 have affected the popularity of the ruling party and its leadership. The flag is not just about the percentage of the votes that each party receives, but the total turn-out too in terms of judging the outcome of the next general election. Meanwhile, the Rand/Dollar exchange rate remains the best indicator of the world’s take on developments in South Africa: whether we are consolidating our position in the Premier League of nations or meandering downhill into the Second Division.

Whatever the flags say, I wish all my readers a great New Year. If you are a pocket of excellence, you will thrive irrespective of how 2016 pans out and which scenario is in play. Foxes adapt and win!

- Send your comments to Clem.


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