DUBAI: Danish bank Saxo Bank has compiled its annual list of 10 Outrageous Predictions for 2021. The predictions focus on a series of unlikely but underappreciated events which, if they were to occur, could send shockwaves across global financial markets.
1. Amazon “buys” Cyprus
2021 sees Amazon and other online monopoly and infotech giants casting an increasingly wary eye on governments looking to take them down a notch for having become too powerful, and for paying very low tax rates.
These companies have long employed an army of lobbyists, with some of them even taking up quasi-governmental approaches to the situation. Take Microsoft, which has launched a United Nations representation office in New York and hired a diplomat to run European government affairs. At the same time, Facebook has even established a “Supreme Court” to oversee user complaints and other issues.
In 2021, as the heat from official quarters rises, Amazon makes its move, redomiciling its EU headquarters to Cyprus. The country welcomes the giant corporation and the tax revenue that will help it reduce its debt-to-GDP ratio of nearly 100 percent. Amazon consultants “help” Cyprus to rewrite its tax code to mimic Ireland’s, but with even lower levels of corporate and other taxes, with the country’s leaders and its population happily in its thrall from the financial windfall and lower tax rates.
2. Germany bails out France
France is one of the European countries facing the highest wall of debt in the coming years. Before the COVID-19 pandemic outbreak, public debt was flirting with the 100 percent of GDP threshold and private debt was skyrocketing, reaching nearly 140 percent of GDP – far more than that of Italy (106 percent) or Spain (119 percent). And the emergency pandemic response has only accelerated the piling on of debt, with the level of public debt expected to rise above 120 percent of GDP in 2021.
Despite a massive stimulus package of €100 billion ($122 billion) and a loan scheme in which the state has guaranteed up to 90 percent of the loans for companies, France is unable to avoid a wave of bankruptcies. Given the poor state of public finances and the already extraordinarily high level of debt, France has no other choice but to come begging cap in hand to Germany, in order to allow the ECB to print enough euros to enable a massive bailout of its banking system, to prevent a systemic collapse.
3. Blockchain tech kills fake news
In 2021, the mounting threat of disinformation and the erosion of trust in even well-established news providers reaches a critical level, demanding an industry response. Major media companies and social platforms are forced to impose new countermeasures against fabricated and misleading news. The enabling technology is a massive shared blockchain network for news content, which allows distribution of news in an immutable way with a validity check of both the content and the source. Companies like Twitter and Facebook invest heavily in this blockchain tech, motivated first and foremost by self-preservation as the threats of regulatory oversight we’ve seen in recent years become white hot.
4. China’s new digital currency inspires tectonic shift in capital flows
The Digital Currency Electronic Payment (DCEP) will be a blockchain-based digital version of the Yuan (CNY) and in 2019, 80 percent of all payments in China were via WeChat Pay and AliPay. The PBOC wants to take this one step further and in the process improve the efficacy of monetary and fiscal policy through an increasingly cashless society and with a goal of enhancing financial inclusiveness. Opening up China’s capital account and creating a currency that rivals the US dollar for reserve status will help boost Chinese consumption, fund an entirely new Chinese pension system and deepen the country’s capital markets.
5. Revolutionary fusion design catapults humanity into energy abundance
The world will need much more energy if our economy is to continue growing at anything approaching historical rates. New alternative and green energy technologies are for the most part not the answer. The world urgently needs a disruption in energy technology. Enter 2021, in which an advanced AI algorithm solves the super non-linear complexities of plasma physics, clearing the way for commercial fusion energy. The mastery of fusion energy opens up the prospect of a world no longer held back by water or food scarcity, thanks to desalination and vertical farming. It’s a world with cheap transportation, fully unleashed robotics and automation tech, making the current young generation the last required to “work” by necessity.
6. Universal basic income decimates big cities
The COVID-19 pandemic has only accelerated the K-shaped recovery that was driving inequality and tearing at the social fabric before the outbreak. Financialisaton of the economy has meant that a single income is not nearly enough to support a family and technology is another driver, with the growing, wage-deflationary forces of software, AI and automation eroding a widening swath of jobs across industries. The risk that societies are entirely torn apart results in the realisation that the COVID-19 measures weren’t a mere panic response, but the start of a permanent new universal basic income (UBI) reality. The new UBI drives changes in the attitude toward work and life balance, allowing many young people to stay in the communities where they grew up. Meanwhile, the professionals and the marginal workers in big cities also begin to leave, as job opportunities dry up and the quality of life in small, over-priced apartments in higher crime neighbourhoods loses its appeal.
7. Disruption dividend creates Citizens Technology Fund
The march of technology, combined with reliance on the legacy principles of the free market economy, is already undermining the social contract and even tearing at the very social fabric; Covid-19 has only accelerated these trends. In 2021 and beyond, our society will have to find a new policy path if we are to avoid deepening injustice, but also political upheavals, social unrest and systemic risk. In 2021, policy comes in for a major overhaul, with a whole new approach to reducing inequality that has little to do with adjustments to the tax code.
8. A successful COVID-19 vaccine kills companies
The COVID-19 pandemic viciously accelerated the dangerous levering up of the global economy that unfolded during the 2008-09 financial crisis. The policy of near infinite liquidity provision and easing financial conditions at all costs has pushed global sovereign and investment-grade corporate yields to historical lows and forced investors to take positions in riskier assets.
The investors’ risky stance is justified by the prospect of an effective vaccine bringing a new boom in economic growth. In perfect hindsight it turns out the economy was vastly over-stimulated during the pandemic, and the ripping post-vaccine recovery rapidly overheats the economy. Inflation rises and unemployment falls so rapidly that the Fed allows long treasury yields to spike higher, taking the yield on riskier debt with it.
9. Sun shines on silver, which sizzles on solar panel demand
Turbocharging the rise in the silver price in 2021, even relative to gold, is the rapidly rising demand for silver in industrial applications. In fact, a real silver supply crunch is on the cards in 2021, and it frustrates the full throttle political support for solar energy investments under a Biden presidency, the European Green Deal, and China’s 2060 carbon neutral goal, among other initiatives.
10. Next-generation tech supercharges frontier and emerging markets
In 2021, economists discover that the growth rates in many frontiers and emerging markets have been woefully underestimated in recent years. Closer analysis reveals that key technologies may lie at the root of an acceleration in private sector productivity growth far beyond anything seen in the developed markets in recent decades.
The first is the arrival of satellite-based internet delivery systems, which are set to crush the price of internet provisioning and importantly delivering an order of magnitude increase in download speeds.
What do the Arab News columnists think?
Frank Kane: The annual beauty of Saxo’s crystal ball-gazing is that each of them has just a grain of plausibility. The one I find most persuasive is the idea that China could launch a virtual currency that would doom the dollar to second rate status. It could happen - but only after China dumps all its T-bills. My own forecast for ’21 is that there will be a massive realignment among the independent oil companies, under pressure from the new oil era and climate change. So here you go: Saudi Aramco will take over either BP, Shell or Total. You read it here first.
Faisal Faeq: In my opinion none of the 10 Saxo Bank 2021 Outrageous Predictions may cause a shocking impact on the financial market. Simply because these predictions are considered to happen, and the market is ready to expect any of the 10 scenarios. However, the financial market could rapidly go into another deep chaos if steep oil prices fluctuations, similar to what we saw in April, were to happen again.
Cornelia Meyer: There is something in prediction #4: China’s new digital currency inspires tectonic shift in capital flows. However, capital flows will be enhanced by a form of Digital Currency Electronic Payment (an electronic version of the Yuan) and NOT driven by it. The bifurcation of the economy between East and West of Suez, low yields, China’s unstoppable rise and the opening of the country’s capital markets will act as a vortex sucking in capital -- for the next few years at least. My outrageous prediction: A mountain of debt will lead to mass defaults in emerging markets, whose economies were badly hurt by COVID-19. Get ready for an emerging markets’ debt crisis of epic proportions!