Uncertainty at polls and more austerity cast a shadow
Political risk will be a key theme in 2015 - at home and abroad. Last month's Greek presidential elections and parliamentary elections next month have put Greece back on the risk radar.
More political risk will come this year with national elections in Spain, Portugal, Finland and the UK with regional elections due in France. The rise of anti-EU sentiment will be a major theme across Europe in 2015, and concerns over the entire Eurozone project are expected to resurface. However, unlike previous years, the focus is not so much on the periphery, but the core. In particular, concerns over the economic health and lack of reforms in France and Italy, with the politics of austerity centre stage.
UK politics is more unpredictable than at any point in living memory. The era of the 'two-party' system appears to be over, which is a trend increasingly evident in Europe too (eg Spain). The UK opinion polls are pointing to a coalition or minority government in May 2015. Indeed, we may even see a three-party coalition. Financial markets are likely to get nervy with UK assets and sterling mid-year due to this uncertainty.
Regardless of who wins the next General Election, fiscal austerity is going to move up a gear. This is both inevitable and unavoidable. The UK, and by extension Northern Ireland, will see more public expenditure cuts in the next five years than have been delivered over the last five years.
To date, none of the main political parties have flagged major tax rises. However, as with public expenditure cuts, these are both inevitable, not least to dilute public expenditure cuts that are deemed to be both undeliverable and politically unpalatable. Whoever wins the next election will have the dubious honour of presiding as UK public sector debt crosses the £1.5trn mark.
As in 2010, we can expect tax rises only to be announced after the election in another 'emergency Budget' in June. All political parties are likely to give a Vat rate rise to 21% serious consideration.
2015 is likely to see a rise of English nationalism. There will be increasing attention paid to inter-regional public expenditure and revenue comparisons within the UK as a result. Northern Ireland is potentially vulnerable to this, given that it is the lowest taxed region of the UK while receiving more public expenditure per head than other UK regions. Additional devolutionary powers and the UK's membership of the EU will remain major political issues in 2015.
Richard Ramsey is chief economist with the Ulster Bank