2023 Predictions

A better economy, but perhaps not politics

Jan 28, 2023

Anyone who writes about politics and society and other matters of public interest should, from time to time, write down their calls and hold themselves to account. Noting that we are fallibles students of society, not soothsayers and seers, and our calls are likely to be wrong, the idea is to write down a few specific statements, and for each, an explanation noting the assumptions and mechanism — essentially, a set of conditional forecasts: I assume X and Y will happen this year, and if they do, I predict Z by next year.

Inspired by Shafquat Rabbee, and using the Financial Times as a guide, I made a few calls last year. I got the big one wrong — I didn’t think Vladimir Putin would invade Ukraine.

Rabbee has a set of forecasts again this year, and I will match mine against his. I will also take the FT prediction challenge. And, of course, I will give a full account of my performance from 2022.

But before any of that, a specific question from my old comrade, Shafiqur Rahman: will the taka-dollar rate cross 135 by the end of the year? My answer is, yes, it will. I expect the interest rates to rise and taka to depreciate this year, with the economy rebalancing. I think a relatively ‘managed’ transition is more likely than a full-blown crisis, but the latter can’t be ruled out. In fact, with a weaker taka helping remittances, and exports buoyed by a possible soft landing in the advanced economies, the Bangladeshi economy may well be recovering by the end of the year. But yes, I do expect each dollar to fetch more than 135 taka by the end of the year.

With that big call out of the way, let’s turn to Rabbee’s predictions for 2023 and beyond.

He thinks the Ukraine war ‘will drag on, without a clear winner for several more months, possibly years’. I agree with his assessment of the relative strengths and weaknesses of the combatants. Where I differ with him is on the western support. He believes that the western support will continue to 2024-25. I think the limit to western support will be reached this year. I also believe that allowing Putin to get away with aggression is not an option. Therefore, I think the war will end in 2023 with a victory for Ukraine — though the exact contours of that win is vey much unclear.

Turning to the global economy, Rabbee expects the advanced economies to tame inflation by 2024-25, with a mini recession along the way. He also expects worse turbulence in the emerging and developing economies. I agree with him broadly, though overall I am perhaps a bit more optimistic than him. I expect, at worst, a mild recession in some advanced economies and fiscal / external / banking crises in some poorly managed emerging and developing economies in 2023.

Rabbee expects US-China relations to galvanize into a long-term strategic competition, while the flashpoints like Taiwan are dialled down. I agree with him that nothing dramatic will happen in 2023 between the two powers.

I also agree with Rabbee’s assessment about Trump, and extremists of both left and right, gradually departing the American political scene. I also agree with him about the debt ceiling fight getting ‘ridiculous’. Unlike him, I think the markets will see through the circus and will avoid ‘severe instability’.

Further, I agree with him that: the Iranian theocracy will survive the protests, and gradually allow closet secularisation; and Afghanistan will continue to be a mess with Pakistan army fighting the Taleban as the latter resorts ‘to desperate old tactics of banditry, war lordism, drug production, and "hostage taking" for survival’; and the Turkish economy will remain unstable. Like Rabbee, I also expect Erdogan to lose a free and fair election. Whether such an election happens is, however, very uncertain.

Finally, turning to Bangladesh, I agree with Rabbee that the regime will ‘survive 2023’. I differ with his assessment that BNP will take part in the election, but do share the rest of his analysis leading to the conclusion that a ‘sudden change of power’ is highly unlikely in 2023.

That is, overall I am perhaps a bit more optimistic than Rabbee on the economy, and believe the war in Ukraine will end sooner than he thinks. Of course, I share much of his political ideology and analytical frameworks, and therfore our differences are minor and nuanced. For example, looking back at the 2022 predictions, other than on Erdogan — who very much retains power and has not left ‘the scene as a defeated man’ —our calls have been similarly right and wrong.

The stuff of viral social media post this ain’t.

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The Financial Times forecasting challenges require yes/no answers. I have already noted that I gave the wrong answer to ‘Will Russia invade Ukraine’. Well, so did Ben Hall, the FT expert. John Thornhill, another expert, also got the wrong answer to ‘Will Tesla shares end the year higher than now’. As did I.

I did, however, correcly answered yes, contra John Reed, to ‘Will Myanmar’s military consolidate its grip’?

Let’s turn to the Financial Times 2023 challenge. The questions, and my answers, are noted below, with an explanation where I differ from the FT analysis.

Will there be a ceasefire in Russia’s war in Ukraine?

Yes. I disagree with Tony Barber (and Rabbee). I think the west (and perhaps China too) would put sufficient pressure to end the war this year. Since there is no leverage on Mr Putin, and since his aggression cannot be allowed to go unchecked, this will mean arming Ukraine sufficiently such that it can win enough on the battlefield to end the war in 2023.

Will there be blackouts in Europe?

Yes.

Will the global temperature temporarily reach the 1.5C warming threshold?

No.

Will the Fed start to cut interest rates?

No.

Will Rishi Sunak still be UK prime minister by the year-end?

Yes.

Will the ECB use its new backstop to contain the bond spreads of Italy or others?

No.

Will Joe Biden stand for president again?

Yes.

Will Donald Trump be indicted?

Yes.

Can China restore economic growth to more than 5 per cent?

Yes.

Will Beijing invade or blockade Taiwan?

No.

Will the Erdoğan era come to an end in Turkey’s June elections?

No.

Can Japan’s yield curve control survive?

Yes.

Will the protests in Iran end?

No.

Will there be a string of defaults in Africa?

Yes.

Will the S&P 500 fall by more than 10 per cent?

Yes.

Will Twitter survive?

Yes.

Will another major cryptocurrency business fail?

Yes.

Will Jamie Dimon announce a successor as CEO of JPMorgan?

No.

Will any of the big streaming platforms sell or merge?

No.

Will the US women retain the football World Cup?

No.

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Of course, the errors in this kind of exercise are as much about the questions not asked as they are about the wrong answers. Perhaps even more so. For example, a year ago, no one was thinking about Imran Khan being toppled. In the year of the underdog, this has to be the iconic video.