“Prediction is very difficult, especially about the future.”
“The uncertainty surrounding the outlook is unusually large.”
(IMF World Economic Update, January 2009)
It’s going to be bad. It’s going to be worse than we thought. You remember a couple of months ago, when we thought it was going to be worse than we had thought a couple of months before that? Well, we were wrong: we now think it’s going to be even worse than that. And in another couple of months we’ll think again.
Let me be a bit clearer. The IMF has just released its latest economic growth forecasts – the sixth set since a year ago (2008’s: January, April, July, October, November).
Six times it has tried to predict growth for 2009. Here is its sequence of efforts for the G7 economies:
Huge changes from one forecast to the next. Clearly, the experts have been radically underestimating how bad an effect the credit crunch would have. The crunch started way back in July 2007, although the real financial carnage – most catastrophically the destruction of Lehman Brothers – was in September 2008. The gap between the July and October forecasts is striking, although not as much as the revisions even since then.
Can we have much confidence in the latest predictions?
Think about it this way: what are the next IMF forecasts, due in April, going to say? Are things going to keep looking worse and worse? Or have the forecasters finally grasped the scale of this mess? Or have they, in their desire to avoid being over-optimistic yet again, erred too much in the other direction? If we can’t predict the next prediction confidently, then what’s the point in crunching numbers about the rest of the year, or even beyond?
I can only shrug. There’s too much uncertainty, particularly about what’s going to happen with the various schemes around the world to support banks and lending. Until this is resolved, there just won’t be any reliable growth forecasts. And without these, other forecasts – unemployment, repossessions, share prices, exchange rates, public finances – will be deeply unreliable too.
I’ve picked on the IMF here only because it’s published a good number of easily accessible forecasts, and because the latest set has got such overwhelmingly uncritical coverage in the media (although Anatole Kaletsky offers a note of scepticism: “no economic forecaster will predict what happens in the next year correctly, except by chance”). Others – businesses, think-tanks, governments, central banks, other international bodies – have also had to keep ripping up their previous worst-case scenarios.
With no disrespect to the doubtless clever and industrious people who calculate these numbers, they are – like the Zimbabwean dollar – not worth the paper they’re printed on.