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Eight Potential Surprises for 2008

Will China finally lose its luster? Will the global economy stumble or soar? Here are some predictions for 2008.

January 9, 2008

Will China finally lose its luster? Will the global economy stumble or soar? Here are some predictions for 2008.

Eight Potential Surprises for 2008:

China loses its luster

Rising wages cause China's export juggernaut to stumble. The Bank of China tightens credit. Foolish investments made during the boom years make even very profitable firms more cautious. The world at large will only connect these dots after the Olympic Games — because the official numbers will have been made to look pretty until then. In the second half of the year, GDP growth will fall to between 5 and 6% — which for China practically counts as a recession. The Shanghai stock market will crash.

Africa becomes the region of the future

Several countries in the continent already produced significant GDP growth rates (in 2006, Angola grew by 27%, Nigeria by 8%, and Ghana by 7%). What is more, they possess endless supplies of raw materials, have low labor costs and are geographically close to the European market. They are already receiving a steady flow of investment funds and new technology. It won't be long until the world will buy not just uranium, cobalt and platinum from Africa — but also computers and t-shirts.

German Chancellor Angela Merkel becomes the new EU president

Never a big fan of Britain's Tony Blair and — after the setback of Hillary Clinton's defeat in the U.S. presidential elections — being keen to underscore the global trend toward women leaders, Ms. Merkel announces her candidacy for the top spot on the European Council. Following the increasingly petulant debate in her home country, she sees the greatest chances for success at the European level. The position of EU President has great creative potential. After the Treaty of Lisbon is ratified, Europe will soon become more important than its individual member states. Merkel wants to push that forward.

The debate on climate change takes a surprising turn

The latest science reveals that the world does not face any energy shortage. Fusion, geothermal, bio-fuels and the already developed renewable technologies can provide enough energy for our needs. We don't need to conserve, but rather to devote enough resources to the research and development of these new technologies. Oil prices will retreat somewhat, as oil-producing countries try to discourage energy conservation and make sure their product stays in high demand.

The dollar rises in value

A suddenly stronger dollar punishes all those who wrote it off for dead. The U.S. government celebrates the resurgence of the dollar on the global stage during the election season — attributing it to good economic policy. The Chinese are happy that they didn't shift too much of their currency reserves from the U.S. dollar into the euro. Even Iran sells oil priced in dollars again. The European Central Bank contemplates raising interest rates — to make sure the euro doesn't depreciate too much, and to protect against inflation on the continent.

The real estate crisis lingers on — and gets really bad in Europe

The markets in Spain, France and the United Kingdom — in which real estate prices have risen much higher in the last few years than in the United States — collapse. While these countries aren't faced with any subprime problem (because that kind of credit is less common in Europe), consumers there spend less, and investors are more cautious. Europe as a whole grows more slowly — not because of trouble in the United States, but because of its own problems.

The U.S. economy recovers

The threat of recession disappears in 2008 faster than everybody expected — showing once again how the resilience and flexibility of the United States have been underestimated. The financial crisis still hurts Wall Street, but Main Street — the real symbol of American capitalism — benefits from several factors: stronger exports, the simultaneous decline in imports, structural improvements in many industries (including U.S. auto-manufacturing) — and new opportunities in the energy sector.

Germany introduces the minimum wage

Germany introduces a national minimum wage of €7.50. Trade unions and the grand coalition are glad they brought about a more socially minded and just Germany. They are even more pleased with themselves because the economic consequences of their actions won't be felt in 2008. In the end, though, Germany will lose its appeal as a place for foreign direct investment. The “German Comeback” will lose steam. It didn't last long to begin with.