Grey swans getting whiter?
Unlike black swans, the ‘unknown unknowns’ that no-one sees coming, grey swans are ‘known unknowns’. We know they exist, but we are not sure what their impact will be.
Of these, a number have whitened. First, the Eurozone. While risks and potential fragility remain – not least because of unacceptably high levels of unemployment – the outlook is improving (thanks in no small part to European Central Bank President Mario Draghi).
Second, there have been positive developments in the Middle East, in particular with Iranian rapprochement, although Syria and Egypt (maybe to a lesser extent now) are, of course, still major concerns.
A softer landing for the BRICs?
Third, the BRICs hard/soft landing. The slowdown in the BRICs economies has resulted in mostly soft landings so far.
Despite its slowing growth, the prospects for China remain strong. The new leadership has made a good start. The economic policy laid out in the 12th Five Year Plan and now in the Third Plenum document augurs strong growth. Not as strong as before, but at about 7.5% per annum, which we would kill for in the West.
India is still a bit of a puzzle. We have to wait and see what happens in the election. It's likely to be a coalition and therefore deadlock and compromise rather than decisive leadership may follow, unless Modi's BJP gains a significant advantage.
I am traditionally a bull on Russia, but for the time being everyone is watching and waiting to see what happens next over events in Ukraine, which have overshadowed what was a successful Sochi Winter Olympics.
We’ve said before that this is the decade of Latin America and, while Brazil has seen slowing growth like the other BRICs nations, it will continue to be hugely important, especially as it plays host to both the 2014 FIFA World Cup and 2016 Summer Olympics. We can’t ignore, though, the fact that Brazil faces more than simply infrastructural challenges as it prepares for these extremely high-profile events. There may be significant activism over growing inequality.
Kicking the can down the road (again)
Fourth, the US budget and deficit issues – still among the biggest grey swans that loom over business. There is little prospect of a final resolution. More procrastination is the order of the day, even if the budget deficit itself has shrunk. The mid-term Congressional elections can only add to the uncertainty.
No time for Britain to quit Europe
Fifth, the two UK referenda (on Scottish independence and, critically, membership of the EU), both of which bring unwelcome uncertainty for business.
All signs suggest the Eurozone may be emerging from recession, with Mario Draghi's strong hand on the tiller. It is all the more puzzling, then, that Britain should be debating whether it stays in the EU.
When Japan calls the country a ‘reliable partner’ if it stays in the EU, the message could not be clearer. Businesses choose to build factories and invest in Britain because of its access to the Single Market. This is important: Britain is the world’s third largest recipient of foreign direct investment after China and the US. The stock of inward investment is equal to half of UK GDP, the highest among the world’s biggest 10 economies.
All signs suggest the Eurozone may be emerging from recession, with Mario Draghi’s strong hand on the tiller
The EU Single Market is the world's largest trading bloc, the destination of half Britain's exports, with 500 million consumers and a GDP of $16 trillion. When it is part of this bloc, Britain has the ear of global partners. When the Obama administration says a strong British voice in the EU is in the American interest, it means it.
Ukraine and East China Sea cast a shadow
And, finally, two further major geopolitical risks: the Sino-Japanese territorial dispute and the international crisis sparked by events in Ukraine and Crimea. The escalation of rhetoric between Japan and China has lifted the spat over the islands of Diaoyu/Senkaku in the East China Sea up the risk register. It reminds everyone that seemingly small disputes can spark much bigger ones. Like the situation in Ukraine, it weighs significantly on global business sentiment.
Principal sources of annual media growth
|Central & Eastern Europe||7.5||6.7|
|Middle East & Africa||5.6||4.1|
|GCC and Pan Arab||0.3||0.4|
Principal sources of annual media growth
|Central & Eastern Europe||1,202||1,578|
|Middle East & Africa||898||970|
|GCC and Pan Arab||54||88|
Chapter 7 of 13