Predictions for the global economy next year are positive, but our writers also foresee a rise in inequality, and some sectors facing significant problems

Some joy for the business world in 2018: but quite a few fears too

Some joy for the business world in 2018: but quite a few fears too

The consensus view among economists is that the global economy will put in a strong performance in 2018, carrying on its strong momentum from 2017. However, that does not mean that every sector and every company will have a trouble-free year. Ryanair’s Michael O’Leary will need to repair staff relations, jobs will leave the City of London and inequality will widen. Our financial and economic specialists predict the big stories in 2018.

A good year overall …



The global economy is set fair in 2018. The International Monetary Fund (IMF) recently upgraded its forecast for global growth to 3.7%, to reflect the return to health of manufacturing in most of the developed world and China.

Manufacturing growth was at a standstill in 2014, as China stemmed the flow of unprofitable cheap exports and the eurozone wrestled with the Greek debt crisis.

This year has proved more buoyant. A dramatic rise in global trade pushed factories across the world to their highest output for decades during November. It is a trend that forecasters expect to continue into 2018.

Donald Trump’s tax cuts, which were pushed through Congress at breakneck speed, are another shot in the arm – even if the only effect is to raise business and consumer confidence levels over the next year.

Oil prices have risen sharply to more than $60 a barrel from a low point below $40 last year, but analysts expect further rises to be muted, allowing growth to continue without an increase in fuel costs putting on the brake.

The IMF highlighted Brexit as a possible drag on the prospects for growth, along with high levels of global debt. But with stock markets hitting new highs at the end of the year, the picture remains quite rosy.

Phillip Inman

… but shares might ease off



After a year of booming stock markets around the globe, commentators are virtually unanimous in predicting that returns in 2018 won’t match those of 2017. The S&P 500 surged 20% this year to a new record high, the Dax index in Germany jumped 13% and, in Paris, the market was up 10%.

The FTSE 100 has also reached record territory, moving above the 7,600 level for the first time just before Christmas. But its year-on-year gain is only 7%, reflecting widespread concerns over Brexit, the economy and feeble wage growth. It remains only a few per cent above its previous high of nearly 7,000 in the final days of the tech boom of 1999-00. Wall Street, by contrast, has risen 75% since then.

Could 2018 be the year the FTSE’s relative underperformance improves? If Brexit negotiations go more smoothly than predicted, interest rates remain low and wages pick up, then domestically focused UK stocks could be the surprise winners (with foreign buyers taking advantage of sterling’s weakness).

How to play it? After his annus horribilis, fading star fund manager Neil Woodford could see his fortunes recover – but he’s still very concerned about overvalued markets globally.

Patrick Collinson

Netflix and Amazon on the up



Facebook Twitter Pinterest Series such as The Crown are propelling Netflix ever closer to on-demand viewing throne. Photograph: Robert Viglasky/Netflix

By the end of next year, services such as Netflix and Amazon will have become as popular with British TV viewers as “traditional” pay-TV companies such as Sky and BT.

The number of pay-TV customers signed up to the main UK providers – Sky, Virgin Media, BT and TalkTalk – is expected to reach almost 16.8 million by the end of next year. By then, the number of people paying for subscription video-on-demand services (SVOD) – Netflix and Amazon’s Prime Video being by far the most popular – is forecast to hit about 16.7 million.

When the margin for error in the forecasts is factored in it is possible that SVOD services, which include Sky’s Now TV and smaller fare such as family-focused DisneyLife, could prove even more popular than pay-TV. “In a few short years, Brits have flocked to these new streaming services, which have become a household staple,” says Richard Broughton of Ampere Analysis. “The UK is one of a handful of markets around the world leading the charge, embracing online viewing.”

However, Sky and friends won’t be fearing for the future of their business models just yet. Largely, consumers are taking services like Netflix alongside pay-TV packages from businesses like Sky, with only 29% saying they choose SVOD specifically over pay-TV.

Mark Sweney

City jobs on the move



Next year is key for the City and banking. Brexit-related job moves are expected as banks begin to implement plans to keep doing business once the UK leaves the EU. The speed and scale of the Brexit moves – which, says the Bank of England, could affect 10,000 jobs by “day one” in March 2019 – will depend on whether a transition period can be agreed and what sort of trading arrangements are made after Brexit.

Many regard Goldman Sachs as a barometer: its new £350m European headquarters in London is due for completion in March 2019. Decisions about how many of the 10 storeys it will fill could be taken in 2018 – signalled, perhaps, though Lloyd Blankfein’s active Twitter feed. The Goldman boss taunted the City last year by praising Frankfurt and Paris – the bank’s preferred post-Brexit hubs. More institutions will follow.

Jill Treanor

Ryanair still battling with staff



The no-frills airline has already moved to placate disgruntled pilots, at least for the time being, by agreeing to discuss union recognition.

It has now promised to sit down with cabin crew, who will have been emboldened by the pilots’ success in holding chief executive Michael O’Leary’s feet to the fire.

After decades of refusing to recognise unions, it seems unlikely that Ryanair will yield easily to the every demand of either pilots or cabin crew. Should major points of disagreement arise, that could scupper any chance of a swift rapprochement that allows Ryanair to focus on what it does best: flogging more airline tickets than anyone else in Europe.

After the embarrassment of two successive waves of flight cancellations in winter 2017, Ryanair will be desperate to stick to its knitting now. That gives cabin crew and pilots more bargaining power than ever before.

Rob Davies

Nuclear sector in cash struggle



The new year will see the backers of new UK nuclear power stations scrabbling for ways to raise the finance for their enormous upfront costs.

The first new plant to start construction in more than two decades, Hinkley Point C, loaded all the upfront cost and risk with the developer, EDF. But it’s becoming increasingly clear that a new financing model will be needed if the government is to get the new nuclear energy it wants. The use of government equity, or a loan, has already been discussed by Tokyo and London for one such plant, on the Welsh island of Anglesey. Horizon, the Japanese venture behind the project, is in talks with officials and has signalled it wants a decision on financing by mid-2018. And with a new boss at the helm of French state-owned EDF, which has ambitions to build a second plant, Horizon is unlikely to be the only nuclear builder testing the appetite for public finance.

Adam Vaughan

Global wealth gap to widen



Facebook Twitter Pinterest Donald Trump’s tax reforms will really benefit about 1% of the US population. Photograph: Xinhua/Barcroft Images

The gap between the super-rich and everyone else – which is already at the widest it has been since the turn of the 20th century – will continue to widen in 2018 as rich Americans benefit from Donald Trump’s “big, beautiful Christmas present” tax cuts. This month, the US president celebrated achieving Congress’s approval for “the largest tax cut in our history”.

Corporation tax will be slashed from 35% to 21%, and the top tax rate cut from 39.6% to 37%.

The Tax Policy Center calculates that 62% of the benefits of the tax changes would go to the richest 1% of Americans. The poorest Americans, who don’t earn enough to benefit from the tax cuts, will benefit by about $60 a year – a 0.4% income boost. The top 0.1% can get their annual incomes to increase by about $190,000 on average – or a 2.7% increase.

The US is already the world’s most unequal society, with four out of five of the globe’s richest people and 41 million officially in poverty, according to the US Census Bureau.

The World Inequality Report, produced by French economist Thomas Piketty, warned this month that unless there is globally coordinated political action to increase taxes on the super-wealthy, the richest-of-the-rich will continue to “capture” more and more of the world’s income at the expense of the poor.

“The global top 1% income share could increase from nearly 20% today to more than 24% by 2050,” the report said. “In which case, the global bottom 50% share could fall from 10% to less than 9%.”

Rupert Neate