Economics: Forecasts? Take your pick
By Bob Edlin
When I went hunting online for cheery economic forecasts recently I didn’t come up with anything too perky. Fair to say, the pre-Christmas NZIER Consensus Forecasts should not drive anyone to depression. The recovery will be slower than previously thought, using these figures, but the economy will still grow: 2.2 percent in the year ending March 2012 and three percent in 2013 and 2014.
The Canterbury reconstruction will be a key driver, with the rest of the economy growing more modestly, averaging 2.2 percent over the next three years.
A darkening global economic outlook was among factors influencing our weaker economic forecasts, and a weaker global backdrop (along with a high exchange rate) is expected to slow export growth. Domestic demand will be slower, too. New jobs and living costs accordingly will rise only modestly. Households will spend less and this magazine’s business decision-makers will be cautious about investing more.
But it’s important to remember the Consensus Forecasts are the average economic predictions compiled from a survey of financial and economic agencies. The range is broad: the average forecast for export growth in the 2012/13 March year, for example, is 1.6 percent, but the range is from -0.9 percent to four percent.
The global outlook has darkened since then. Olivier Blanchard, chief economist for the International Monetary Fund, early in January told Bloomberg Television the IMF would be making a “fairly substantial” cut to its forecast for global economic growth this year.
His chief, IMF managing director Christine Lagarde, told reporters in South Africa: “We should all be prepared for a 2012 that will not be a walk in the park.”
The International Business Times consulted a firm of economic forecasters, the Centre for Economics and Business Research (CEBR), which had successfully predicted Greece and Italy would default on their debts. It is confident its 2012 forecasts are just as accurate.
From New Zealand’s point of view, let’s hope they’re wrong. The CEBR foresees cracks starting to appear in the Asian economic and political success story, with growth slowing down to just over seven percent in China and to six percent in India. It says the Asian economic and political systems are like a bicycle that has to move at a certain speed to remain stable and even modest slowdowns are likely to lead to popular discontent.
CBN News interviewed Mark Skousen, editor of the influential Forecasts & Strategies newsletter. He was keeping a wary eye on Europe, worried the continent’s spreading debt crisis would take down the European Union. It could seriously hurt the United States, too. “What you’re facing is the possibility of an unravelling of the eurozone,” he said.
The worst-case scenario? “It’s a major recession. It’s riots in the streets. It’s a collapsing stock market, a stock market crash. All of the scenarios of your worst nightmare is what people are in fear of.”
Jack Rasmus, the author of Epic Recession: Prelude to Global Depression (May 2010) and the forthcoming Obama’s Economy: Recovery for the Few, has been soothsaying, too. He set out his sobering Economic Predictions for 2012 to 2013 in an article in Truthout, a non-profit organisation in the US dedicated to providing independent news and commentary on a daily basis.
Rasmus’ predictions include the US experiencing a double-dip recession in early 2013 (maybe earlier, in the event of another banking crisis in Europe); two or more euro banks will “fail”; Germany and France will experience modest recession this year; the United Kingdom will experience a more severe double dip; China’s economic growth rate will slow.
Commenting on a blog post which headlined Rasmus’ pessimism, someone has observed: “Just remember that these are just predictions. We need to keep our hope. You and I can predict things too.”
Indeed we can. If readers wish to predict a happier year ahead, go right ahead. M
Bob Edlin is a leading economic commentator and NZ Management’s regular economics columnist.
© NZ Management magazine February 2012