Economics, politics and markets: Why people don’t tend to forecast recessions

Posted: July 21, 2016 in economy
Tags: , ,

IN LATE 2008, during a briefing at the London School of Economics, Queen Elizabeth II famously asked why no-one had seen the downturn coming. There can be no better answer than the current furore over the outlook for the British economy in the wake of the vote to leave the EU. A poll by Bloomberg shows that economists expect the UK economy to shrink by a modest 0.1% in each of the third and fourth quarters, compared with the 0.6% gains expected before the vote. And the forecast growth rate for next year will be a sluggish 0.6%. The IMF is a bit more upbeat, expecting 1.3% growth next year, but that is still 0.9 percentage points lower than its pre-referendum expectation.Why the gloom? This explanation from Barclays is fairly typical.we expect already elevated levels of uncertainty will spiral out of control. Therefore, we forecast fixed investment to materially contract immediately, with consumption to ease at first before contracting by end-2017 as households feel the pinch from rising unemployment and a sharp increase in headline CPI weighing down spending power. Hence, we forecast UK GDP growth of 1.1% in 2016 and -0.4% in 2017, following 2.2% in 2015.Such forecasts are hardly a surprise, given the widespread view of economists before the referendum that the short-term impact of a Brexit vote would be damaging. But this is not going down well with the Leave camp, …

via Economic Crisis


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