What kind of year will it be around the globe? Myanmar will have a good one, but Europe will get even worse. Here’s our outlook for the world in 2013:
‘In-sourcing’ will bring back U.S. jobs
U.S. Manufacturing will come back, but it won’t bring the middle class with it. U.S. manufacturing actually slowed in the third quarter of 2012, thanks largely to uncertainty tied to the fiscal cliff and weak overseas demand. But make no mistake, a domestic manufacturing boom is coming to the U.S., and in 2013, it should make “in-sourcing” the biggest business buzzword since “synergy.”
Companies long synonymous with moving production overseas, such as GE and even Apple, have already begun bringing work back home. Why? For one thing, it’s getting more expensive to make things in Asia. Chinese wages have climbed an average of 16% per year over the past decade. Add in global shipping costs that only seem to move up, and the margins that drove the original outsourcing boom don’t look quite so fat anymore.
More important, it’s also getting less expensive to make things in the U.S. The Marcellus Shale boom has flooded the American market with cheap natural gas, driving costs down for energy-intensive factory work. Labour costs are falling, too, as so-called right-to-work legislation strips away collective bargaining rights in state after state.
For that reason, but not that reason alone, the in-sourcing boom isn’t likely to bring back the American blue-collar middle class. The manufacturing resurgence is happening because labour is getting cheaper and, thanks to digital advances, is less necessary than it once was. Even as the factories come back, in other words, the lifelong, high-paying jobs won’t.
Myanmar’s newly opened economy will boom
Myanmar, closed off to the world for decades, is now open for business. Even as the commodity boom slows, the abundance of Myanmar’s riches, including tin, copper, coal and gold, will attract investors in 2013.
Libor will claim more of Europe’s top bankers
The scandal over bankers who manipulated the Libor benchmark did its most explosive damage in 2012. But the toxic fallout is just starting to settle, and it will claim more of Europe’s top bankers in the coming year. The rate fiddling has already led to billions in fines and acres of bad press for the industry. More top banks will reach settlements with regulators in 2013, and more top bankers will be turfed for their roles in either fixing the rate or ignoring those who were.
First to go may well be Royal Bank of Scotland duo John Hourican and Peter Nielsen. RBS is thought to be desperate to reach a settlement with regulators sometime it the first quarter of 2013. But doing so may well require a few high-profile figures to fall first. Hourican, head of the RBS investment bank, and Nielsen, head of markets, likely fit the bill, despite the fact that it’s likely neither played a direct role in manipulating the rate.
Even after RBS does settle, the Libor issue won’t go away. Indeed, for foes of the banking industry, Libor will be the scandal that keeps on giving in 2013. Expect lawsuits, leaks and criminal prosecutions, not to mention government hearings designed for maximum possible public excoriation, to reappear regularly throughout the year.
Brazil will own more of the world’s largest companies
Foreign direct investment in the South American giant hit an 18-month high in July and continued to surge in the fall, even as global demand softened and the overall economy slowed. Next year, with the recovery set to hit its stride—GDP growth should be about 4%—Brazil will become even more of a magnet for foreign bucks.
It’s not hard to see why, either. Unlike the other BRIC nations—Russia, India and China—Brazil is both democratic and stable. Add in the seemingly permanent crisis in the eurozone and the ongoing fiscal cliff madness in the U.S., and Brazil stands alone among the world’s largest markets as a predictable, growing, attractive place to invest.
But as much as others have enjoyed investing in Brazil, the new hot trend in 2013 could be Brazilians investing elsewhere. Brazilian businessmen have made a habit of cornering the market on products Canadians love in recent years. The country’s richest man, Jorge Paulo Lemann, took control of the world’s largest beer company, AB InBev, in 2008. The Brazilian Batista family owns and operates JBS—the world’s largest meat producer. And Petrobras, the country’s semi-private oil and gas giant, is now the largest company of any kind in the southern hemisphere. Expect all three to throw their weight around in the coming year.
Chile’s economy will slump as copper prices fall
The coming copper bust: Chile’s copper-heavy resource sector and stable, well-managed economy kept it from the worst of the economic downturn. GDP growth was an enviable 5.5% last year, according to a December estimate by the IMF. But in 2013, the good times could begin to end. Global demand for copper is slipping, and for the world’s largest copper producer, that means trouble. On another front, infrastructure, especially in the power generation sector, has not kept up with demand and could keep Chile from expanding as fast as it should.
China will corner the market on drones
At its semi-annual Zhuhai Air Show in November, China unveiled a new line of mid-range, unmanned drones that have military officials in the developing world drooling. Israel and the United States have the global unmanned aerial vehicle (UAV) market cornered at the moment. And while the Chinese won’t match those two on technology any time soon, they’re already more than competitive on pricing. That advantage—driven by lower labour costs and, quite likely, purloined technology—will make Chinese drones more and more attractive to government buyers, both domestic and international, in 2013.
For now, drone makers China Aerospace Science & Industry Corp. and Aviation Industry Corp. of China are mostly focused on filling orders from their own military. Regional rivals South Korea and Japan both have access to top-of-the-line American UAV technology, and the Chinese are eager to close that gap. As they do, international orders should pick up as well. Foreign buyers are already showing interest in the Chinese drones: Kenyan, Burmese and Russian officials were all reportedly on hand to ogle the latest models at November’s unveiling.
Latvia’s pain will end
Latvia suffered the worst recession in the world in 2008. Now, thanks to a painful if necessary austerity program, it’s bouncing back. Breakneck growth will continue in 2013, even as the government keeps spending low in an effort to gain entry into the eurozone.
South Africa mining woes will slow growth
South Africa’s mining sector is set to remain stunted and underproductive this year. Labour unrest and government corruption continue to conspire against the country’s economic development, despite mineral deposits that rival the richest in the world. A recent Deloitte survey estimates that over the next 20 years, US$55 billion will be invested in Australian mining, US$33 billion in Brazil and just US$3 billion in South Africa.
