Goodbye to a decade, hello to a 2020 full of uncertainty

Not just the end of a year but the drawing to a close of the century's second decade. A period that began with Barack Obama in the White House and ended with Donald Trump as the leader of the free world, as nobody calls him. Strong men lead populist, oligarchical, despotic regimes in China, the US, Russia and the UK.

Europe remains a beacon of relative stability, with Angela Merkel in office at both ends of the decade, but even her reign is coming to an end.

Ten years ago we were emerging from the Great Financial Crisis. A crash and subsequent economic bounce that few economists saw coming. Their reputation has yet to stage anything like the recovery seen in the world economy.

Nobel prizewinning economists proclaimed the end of economic depressions just before one started. Chicago-based economists gave us the economic policies that contributed to the malaise suffered by the “left behind” all over the globe.

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It seems a little unfair, therefore, that the economy that has done the best is the US. And the US stock market has done best of all: perhaps the longest and strongest bull market in history started in March 2009, with a key index registering, appropriately perhaps, 666.

It has risen almost five-fold since then, with a totally unexpected rise of 25 per cent coming in 2019 alone. For all the fears of recession, trade wars, Brexit and Trumpism, investors in America are making out like bandits. Again, not entirely coincidentally. Other stock markets can only look on with envy.

Global story

If single companies tell a global story, consider the fate of JP Morgan and Bank of Ireland. A decade ago you could have picked up a share in JP Morgan for about $40. Today, it trades at nearly $140. Anyone buying Bank of Ireland 10 years ago would have lost most of their money. But JP Morgan isn't even half the story.

That prize belongs, almost entirely, to the big technology companies that today dominate our lives. The equity market reflects the problems that drive our politics: winner takes all. And there are an astonishingly small number of winners, both in the stock market and society.

If simple share prices paint a complex picture, so do some single economic statistics. Gerard Brady of Ibec put it well recently, commenting on latest CSO data on Dublin Airport: numbers that tell the Irish economic story. Ten years ago, there were few forecasts of even medium-term recovery and nobody foresaw anything like what was about to happen over the longer term.

The price of solar and wind energy is now at or below the cost of electricity produced by coal and gas in many parts of the world

The airport had seen annual passenger numbers collapse to 18 million and Terminal 2 was widely described as a white elephant. But 32 million people passed through Dublin Airport over the past 12 months.

The US stock market has massively outperformed the rest of the world: by 60 per cent since the trough of the crisis. In part it’s a revaluation: US stocks are now very expensive, while the rest of the world is not.

But it’s also been about earnings: some US companies, mostly those tech stocks again, have generated huge increases in profits. And a large part of those profits escape tax. Analysts estimate that nearly $200 billion in taxes disappeared last year alone. That neatly explains why the long-standing drive to reform multinational – especially US – corporate taxation came to something of a head in 2019.

New regime

It looks likely that a new regime will come into being, with further details emerging throughout the course of next year. Ireland will lose part of its corporate tax windfall as a result. Just how big a hit remains to be seen.

Big, lightly-taxed, profits for a small number of companies have added fuel to the debate over inequality. Thomas Piketty published another book in 2019 adding more to what we know about unequal incomes and wealth. While we now have more detail it is still a murky statistical area: not everyone agrees with the popular narrative that inequality is rising everywhere.

In the UK, for instance, official data suggests that income inequality has been stable since the 1980s. Ireland stacks up well in the international league tables, largely because of the Scandinavian levels of income redistribution achieved by the tax and welfare system. Where there is a clear issue with growing inequality of all kinds is in the US.

Wealth inequality presents a somewhat different and even murkier picture: we suspect that this has grown but the data is poor. Nevertheless, throughout last year, those suspicions elicited louder calls for wealth taxes to be increased everywhere. Perhaps the only place where this might happen is, appropriately and surprisingly, the US, should someone like Bernie Sanders or Elizabeth Warren be elected president next November.

This year began with worries over the another global recession. Those fears resurfaced several times throughout the year, usually driven by escalating trade tensions. The year ends with a tentative deal finally being reached to begin lowering some of Trump’s tariffs. Some commentators think this will only prove to be a temporary trade truce: a long-term battle between China and the US has begun, which is about much more than trade.

The world economy stuttered throughout the last year but did manage to avoid recession. Some economies fared worse than others. Germany, in particular, was hit by both the trade war and problems in its auto industry. Its manufacturing industry is particularly exposed to the slowdown in global trade and the demise of diesel engines , if not all internal combustion devices.

European slowdown

Christine Lagarde, the new ECB boss, will be praying that she won't be faced with another European slowdown: her tenure will be defined by whether one happens or not. If an unexpected slowdown hits she will have the unenviable task of persuading the Germans to engage in yet more monetary easing. Interest rates and inflation remain noticeable only by their absence.

Business woke up to climate change in 2019. Fund managers are scrambling to burnish their ESG – environmental, social and governance – credentials.

Some large funds began thinking about divesting from oil and gas investments. The costs of decarbonising our economies are beginning to be calculated: estimates vary widely, but the race is on. New technologies are springing up and huge amounts of money are being poured into improving battery storage.

A Bill Gates-funded start-up in the US announced that a combination of artificial intelligence and new solar techniques had allowed an array of mirrors to generate temperatures necessary for the production of steel and cement. Those industries produce greenhouse gases orders of magnitude greater than aviation.

Members of Extinction Rebellion, the movement that emerged in 2019, want us to give up flying. Estimates vary but the livestock industry, particularly dairy, is thought to generate as much as six times the greenhouse gases of aviation. Giving up beef, rather than flying, would have much more impact on the environment.

Both represent an existential threat to large chunks of the Irish economy. Industry is reacting to these pressures: EasyJet, for instance, announced targets to be emissions neutral. Ireland failed in 2019 to meet emission targets but sits close to the bottom of the league table of carbon intensive economies. It is a blessing not to have many of the old, energy-intensive industries such as autos, steel or coal. That means we escaped the effects of 2019's global industrial slowdown and we don't emit much carbon per unit of GDP.

It is possible to paint an optimistic picture: the price of solar and wind energy is now at or below the cost of electricity produced by coal and gas in many parts of the world. Technology is being developed to allow for efficient capture of carbon. But until the US and China start taking the environment seriously, our efforts – vital though they are – will be in vain.

This year saw Europe show leadership with a new environmental pact – described as a “moonshot” in some quarters. Against that, China announced enough new coal-fired power stations to swamp all these efforts. And, of course, Donald Trump believes climate change is a hoax.

This was another Brexit year and 2020 will be no different. We now await the next incarnation of Boris Johnson. Will he let down his new voters from the old industrial towns of mid and northern England, and North Wales, and pursue the hardest of Brexits?

U-turn

Or will he use his landslide victory to sideline his extremists and tack to the political and economic centre? He cannot deliver on both a comprehensive free trade deal with the EU and the US: there is an automatic trade off between the two. Only a U-turn of some kind, always possible with Johnson, can avoid a hard Brexit at the end of 2020.

An extension of the transition period or a deal that keeps the UK aligned with the EU both look as plausible as a hard Brexit next December. It’s still very much all up in the air.

Next year will bring elections in both Ireland and the US. Whereas our plebiscite is unlikely to generate much change, the American one promises to be much more interesting. The US faces almost as stark a choice as the one just made in the UK.