FINANCE
Post-Covid apocalypse, decimation of cities & Amazon buys Cyprus: Saxo Bank unveils ‘outrageous’ predictions for 2021
Danish investment bank Saxo Bank has released its annual list of “outrageous predictions,” trying to assess some unlikely – but not impossible – events that could shake up the global financial markets after the trauma of 2020.
While the bank says the list is merely “a warning against the potential misallocation of risk among investors,” Chief Investment Officer Steen Jakobsen noted that there is one “not-so-outrageous prediction” for 2021. According to him, next year may become “a reality check to the idea that ‘extend and pretend’ can stretch to infinity and beyond.”
Notably, last year Saxo Bank was partly right about this year’s US elections, as it expected the Democrats to take control of the presidency and both houses of Congress. It also warned about the possible demise of the US dollar, which has seen a decline in 2020.
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Amazon buys Cyprus to create its own tax heaven
The 10-point list released on Tuesday starts with the possibility that US tech giant Amazon, having capitalized on coronavirus lockdowns, could buy Cyprus to turn it into its own corporate tax haven. In Saxo’s scenario, the tech giant first moves its headquarters to the island, and then it “literally buys” political power at all levels and further helps the country to rewrite its tax code. The updated law may mimic Ireland’s tax code, but with even lower levels of corporate and other levies.
Universal basic income & remote work destroys cities
The bank doesn’t seem to have much faith that the global economy will rapidly rebound after the unprecedented coronavirus crisis. It says that the pandemic has only accelerated the K-shaped recovery, which means that some sectors of the economy have bounced back while others are desperately lagging behind, further widening the inequality gap.
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In such a situation when “societies are entirely torn apart,” the Covid-19 emergency measures may evolve into a permanent new universal basic income (UBI) reality, Saxo bank predicts, warning that the concept may “decimate” big cities. Coupled with tech-driven job redundancies and remote work, the UBI era could crush the commercial office and real property market. Young professionals may opt to stay in the communities where they grew up, while others could start leaving big cities, which are no longer so attractive in terms of job opportunities and life conditions.
Covid-19 vaccine could be ‘ultimate’ killer of economy
Global central banks have been busy printing more and more money to mitigate the economic fallout of the Covid pandemic. This has driven interest rates to nearly zero, forcing investors to shift to riskier assets.
Stock markets were rallying amid hopes that Covid-19 vaccines will be rolled out soon. However, instead of the anticipated recovery, it may add pressure on the already overheated economy, Saxo Bank predicts. This would spike inflation, forcing the Fed to increase long treasury yields, but the yield on riskier debt will also spike. At this point, many weaker companies could default.
Germany will have to bail out France
According to Saxo’s suggestions, Germany may have to “bail out” France to prevent the systemic collapse of the EU’s second-largest economy. France could face a wave of corporate bankruptcies that will eventually affect its banks, and it will have no “other choice but to come begging cap in hand to Germany, in order to allow the ECB to print enough euros to enable a massive bailout.”
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Less alarming, but still crazy predictions
The rest of the possible events listed seem to be less alarming. Saxo Bank analysts say that China could further develop its digital yuan. The digital currency would not only rival the US dollar, but also open up the Chinese capital market for foreigners and boost the country’s economy.
Next year may become a turning point for “woefully underestimated” emerging economies. Their growth would be driven by better access to technologies and education.
As the coronavirus exacerbates wealth inequality, the bank suggested creating what it calls a “Citizens Technology Fund” to avoid political upheavals and social unrest. Strange as it may appear, the idea is to transfer a portion of asset ownership of capital assets to everyone.
The bank’s analysts also said that in 2021 artificial intelligence (AI) algorithms may pave the way for commercial fusion energy, while blockchain technology could somehow become our shield from fake news. Saxo Bank also expects stronger demand for silver in 2021, which will drive up the price of the metal.
Germany’s GDP could stagnate or even decline in the third quarter, Bundesbank has warned
The German economy has been shrinking over the past two years and will remain stagnant for the rest of the year as it continues to grapple with economic malaise, Bloomberg reported on Friday.
According to a survey conducted by the outlet, the EU’s top economy has been stalling in the three months through September, marking a deeper-than-expected decline.
Economists have already started downgrading their forecasts for this year, with some now seeing protracted stagnation or even another downturn.
“While we expect the market to see a mild recovery at the end of 2024 and in 2025, much of it will be cyclical, with downside risks remaining acute,” Martin Belchev, an analyst at FrontierView told Bloomberg.
He warned that the faltering automotive sector will further exacerbate downward pressures on growth as the top four German carmakers have seen double-digit declines.
Thousands of EU automotive jobs at risk – Bloomberg
The country’s central bank said on Thursday in its monthly report that the German economy may already be in recession. According to the Bundesbank, gross domestic product (GDP) “could stagnate or decline slightly again” in the third quarter, after a 0.1% contraction in the second quarter.
Economic sentiment in the country has suffered due to weak industrial activity, Budensbank President Joachim Nagel said on Wednesday.
“Stagnation might be more or less on the cards for full-year 2024 as well if the latest forecasts by economic research institutes are anything to go by,” he said.
German industry is struggling amid weak demand in key export markets, shortages of qualified workers, tighter monetary policy, the protracted fallout from the energy crisis, and growing competition from China, Bloomberg noted.
The Eurozone’s largest economy has been falling behind its peers over the past years, largely due to a prolonged manufacturing downturn. Germany was the only Group of Seven economy to contract in 2023.
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A third of the region’s major car plants are currently operating at half capacity or less, according to a report
European auto makers are facing more plant closures as they struggle to keep up with the electric vehicle (EV) transition amid slowing demand and growing competition, Bloomberg reported on Wednesday.
According to the outlet’s analysis of data from Just Auto, nearly a third of the major passenger-car plants from the five largest manufacturers – BMW, Mercedes-Benz, Stellantis, Renault and VW – were underutilized last year. The auto giants were producing fewer than half the vehicles they have the capacity to make, the figures showed.
Annual sales in Europe are reportedly around 3 million cars below pre-pandemic levels, leaving factories unfilled and putting thousands of jobs at risk.
The report pointed out that sites shutting down would add to concerns that the region is facing a protracted downturn after falling behind key competitors, the US and China.
“More carmakers are fighting for pieces of a smaller pie,” Matthias Schmidt, an independent auto analyst based near Hamburg, told Bloomberg. “Some production plants definitely will have to go,” he warned.
VW announced last week it was considering closing factories in Germany for the first time in its near nine-decade history. The automaker said it was struggling with the transition away from fossil fuels.
BMW has warned that tepid demand in China poses a further threat to sales and profits.
Volkswagen planning major cutbacks in Germany
The threat of factory closures in Europe has worsened in recent years amid skyrocketing energy prices and worker shortages that have driven up labor costs.
“Failure to turn things around would deal a blow to the region’s economy,” Bloomberg wrote, pointing out that the auto industry accounts for over 7% of the EU’s GDP and more than 13 million jobs.
Car-assembly plants often are “anchors of a community,” securing work at countless nearby businesses, from suppliers of engine parts and trucking companies to the local bakery delivering to the staff cafeteria, the report said.
Closing plants is usually “the last resort” in a region where unions and politicians have a strong hold over corporate decision-making, concluded Bloomberg.
There’s “massive consolidation pressure” for auto plants in Europe, Fabian Brandt, an industry expert for consultancy Oliver Wyman, said. “Inefficient factories will be evaluated, and there will be other kinds of plants that shut down,” he claimed.
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