Briefing for '98: Uncertainty? Count on it

When the nation returns to work tomorrow investors, managers and employees can count on only one certainty: 1998 will be a year of uncertainty.

Prime Minister Tony Blair has assembled a strong government. He and Chancellor Gordon Brown have demonstrated their economic competence. EMU seems inevitable. Despite a recent European Commission poll indicating that only 47 per cent of Europe's 300 million citizens favour the euro, the Continent's political and business leaders have travelled too far down the track to turn back now.

Undermining what certainties there are, however, is the unresolved Asian financial crisis. "This is a profound moment for the psychological state of the world economy," wrote Robert Johnson, a former managing director of Soros Fund Management, in the International Herald Tribune last week.

Mr Johnson points out that economic models are constructed on the assumption of stable expectations, but that expectations are in flux around the world as a result of the Asian financial crisis, and that, consequently, even updated 1998 forecasts are worth little. Both the optimists and pessimists are whistling in the dark.

The financial diplomatic fraternity is now in the process of bringing the Asian crisis under control. Step one, all but completed, has been to force East Asian governments to raise interest rates and accept higher unemployment, and so bring regional demand back into line with regional supply. Step two, the business of the moment, is to neutralise the bad loans eroding the capital of local banks.

Step three, still to come, is beyond the control of the International Monetary Fund, the Bank for International Settlements and even Washington. The final task will be to get Asia's billions - now habituated to annual growth rates exceeding 5 per cent - to learn to live with annual growth rates nearer the global mean of 2 per cent plus.

It took Britain 30 years from its 1967 IMF bailout to adjust to this sort of decline. Japan has been in denial about its new economic facts of life since its bubble economy burst in 1990. How long is it going to take the Asian tigers to adjust - and at the price of what political turmoil?

At home, meanwhile, the Blair Government will stick to its two-pronged economic strategy in 1998: manage the cycle short term to avoid boom- bust, and manage the economy long term to nudge up the potential annual growth rate.

Those in business can count on the media to report and analyse the Government's economic policies. Less reliable, however, is the job the media will do in monitoring the key to medium-term economic progress: institutional renewal in the public and private sectors.

Is GEC finding its feet again after the prolonged decline that marginalised it in comparison to General Electric of America, Siemens of Germany and Philips of the Netherlands?

How well is British small business doing at growing itself to the level of international competition? Accountants KPMG report that despite the bull market, initial public offerings of shares in companies fell by 65 per cent in 1997.

Will the Bank of England take advantage of its new independence to become a true countervailing power in the nation's economic policy making establishment? There has been an impressive renewal of the central bank in recent years. But no one has yet delved into the consequences.

Beginning tomorrow, the news will once again begin crowding in on all those active commercially. There could well be dramatic headlines. President Yeltsin's health could go, prompting a turbulent shift in power in Moscow. The damaged Arab-Israeli peace process could prompt another interruption of Middle Eastern crude flows. The collapse of one-party rule in Mexico could rebound on the dollar. In the face of the prospect of such turbulence, investors and businessfolk search for comforting themes.

But the themes of 1995-1997 now look feeble. No one knows whether globalisation is a positive or negative force any more. No one knows if the New Economic Paradigm - meaning a world economy fostering an underclass and pervasive job insecurity, but good times for those in work - is real.

In 1998 the economic theme is likely to be "no theme". In a series of end-of-the-year interviews last week, the Bank of England Governor, Eddie George, obliquely endorsed this probability. Speaking as unambiguously as central bankers can, his message was clear: uncertainty will be the bedrock of 1998. Learn, if not to love it, to cope with it.