This time a year ago, the big questions being asked were how soon would the Trump boom, which had already lifted US stock prices by 20 per cent during the presidential campaign, come to an end?
How long would it take the British economy, following the Brexit vote, to fall off a cliff? When would the anaemic world economic recovery, particularly in the EU countries, run out of steam? Where and for how much would Saudi Aramco list its stock? And if you wanted a fifth one, you could have added: when will the bitcoin market implode, although it should be added that a year ago most of the world’s population didn’t know what a bitcoin was.
The Aramco question is now, along with bitcoin, a question for 2018, with Hong Kong beginning to look the best bet for the Saudi oil major's IPO, but the answers to the others have confounded just about every pundit. Mr Trump didn’t run out of steam – he has ended the year like a runaway train, still picking up speed. The British economy still marches on, with growth at an unexpectedly strong 1.7 per cent. The world economy has remained in unexpectedly good shape; and the EU has shown a sudden turn of speed that has caught everyone by surprise.
It has been an astoundingly good year all year round, particularly in the markets. At the start of 2017 a group of 18 Wall Street market analysts forecast that the S&P 500 would rise by 5.5 per cent in 2017. And what happened? It managed more than 20 per cent, hitting new record highs no less than 53 times, or more than one a week.
The Dow Jones Industrial Average notched 70 record closes, its largest number since its inception more than 80 years ago, and its biggest winning streak since 1965. The Nasdaq Composite also set all-time records, and Hong Kong, South Korea and Brazil beat even that.
Scarily, a majority of analysts polled by The Wall Street Journal last week forecast that the eight-year-long boom will go on well into 2018 and possibly beyond. "What I'm worried about is that things are so good that it's become the consensus expectation," said Dan Miller of GW&K Investment Management.
The last-minute passage of Mr Trump’s US$1.5trillion tax cuts act caused economists on Wall Street to revise up their growth estimates for the coming two years, reckoning they will add 0.7 per cent to an already strong growth figure in 2018 and another 0.2 per cent in 2019.
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The economists at Goldman Sachs are now looking for US GDP growth of 2.6 per cent in 2018 and 1.7 per cent in 2019, which is, respectively, 0.3 and 0.2 per cent more than their predictions before the bill was passed. Interestingly enough, Goldman also expects the US unemployment rate to fall to 3.3 per cent in 2019, a figure last seen in 1952. Of course, as they point out, the deficit will rise alarmingly after that and the impact of the tax cuts will fizzle out – and even reverse – after a couple of years, but right now no one, particularly the Republicans as they head into a vital election year, is too worried about that.
And if you want any more good news, look to the East where the world, according to yesterday's London Times, "is heading for its biggest building boom" since the Great Wall of China was constructed over 2,000 years ago. Huge infrastructure projects planned for China and India will power the eastern economies to the point where, according to the think tanks, China will overtake even Mr Trump's tax cuts-fuelled economy by 2030, India will pass France and Britain (now the fifth and sixth-biggest economies, respectively) and South Korea and Indonesia will enter the top 10, something unimaginable even a decade ago. Taiwan, Thailand, the Philippines and Pakistan are all heading for the top 25.
Back in Britain, despite the gloom and uncertainty that settled over business and the City with the Brexit vote, the disastrous general election, the divided Tory party and the growing possibility of a Jeremy Corbyn-led government, share prices still rose more than 20 per cent, also consistently hitting new all-time highs. But it would be a rash person who got carried away by that. Latest surveys record a disturbingly low level of consumer confidence, or what the late great economist John Maynard Keynes called “animal spirits”, which he defined as a “spontaneous urge to action rather than inaction”.
Animal spirits drive an economy and right now they are a scarce commodity. In 2015, the year before Brexit, consumer confidence in Britain hit the highest levels ever recorded, with zero inflation and strong economic growth leaving households in good shape. The Brexit vote has changed all that and recent surveys by the Bank of England show business disappointed by sales growth over the past year, and an overwhelming majority expecting it to get worse next year. The latest Lloyds Bank business barometer concludes that “firms remain concerned about the outlook” with larger companies particularly worried about Brexit.
So, while the US and the global economy head into 2018 with their animal spirits high, Britain is still cautiously feeling its way forward, watching for that cliff edge. And we’re all waiting for bitcoin’s big bang.
