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Market predictions? Here’s five things we can't foresee
As it turns out, they are all hugely important.
Andrew Milligan, a man who makes a lot of predictions about financial markets, cites Pope Benedict XVI, among others, to dispel some of the false prophets in his own profession: ‘Our hope does not rely on improbable predictions nor even on economic forecasts,' the leader of the Catholic Church once said.
Halfway through a talk on how global financial markets will fare this year, Milligan, head of global strategy at Standard Life Investments, highlighted five things we simply don’t know. And, as it turns out, all of them are hugely important:
1. The impact of quantitative easing (QE) on growth and inflation
Economists at the Bank of England and elsewhere have drawn their own conclusions, but no one can really untangle the complicated effects of the QE programmes unleashed in the UK, US and Japan. Milligan, though, emphasises just how much governments are manipulating markets with these policies: ‘It is rather difficult to think of a single market they’re not manipulating at the moment!’
2. The impact of deleveraging on economic activity
This was one of the key themes at the Institute of Economic Affairs conference at which Milligan was speaking: the massive debt-cutting programmes being undertaken in much of the developed world, and just how damaging they could be.
3. The extent of China’s complex indebtedness
‘We can all make educated guesses, but Chinese statistics are far worse than even US and UK ones,’ says Milligan of concerns over the extent of debt in China – fears that have put many investors off the nation's banks.
4. The degree of US fiscal tightening in 2013
‘We have no idea at all what fiscal policy will be in America in 2013,’ says Milligan, in comments about the uncertainty that this year's US elections are creating.
5. The outlook for Middle Eastern politics
Amid particular uncertainty about Iran’s policies, Milligan said: ‘Nobody forecast the Arab Spring, so why should we get anything else right in the Middle East?’
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