In addition to their regular forecasts for the major economic indicators, each January we survey our panelists for their predictions of how the various economies are most likely to perform over a given time horizon. We undertake special surveys of economic forecast probabilities across our publications Consensus Forecasts – G7 and Western Europe, Asia Pacific Consensus Forecasts and Eastern Europe Consensus Forecasts.
This special survey aims to assess the risk of these other ‘non-consensus’ outcomes, which range wider than a simple examination of the highest and lowest central forecasts would suggest. In order to do this we asked our panellists to assess the probability that the variables covered would fall within the ranges displayed in the partial sample tables below, which allowed us to compile some rough probability distributions to identify those areas of greatest uncertainty in the economic outlook. The ranges themselves differ from country to country and from variable to variable, but were set so that the central range (the middle column in the tables and charts) encompassed the consensus forecast from last month’s survey. The width of all of the ranges was chosen to reflect the standard deviation of central forecasts for each variable. The ranges are wider for those variables for which the economic outlook is most uncertain.
|G7 and Western Europe||Asia Pacific||Eastern Europe|
|United States||Australia||Czech Republic|
|Euro zone||New Zealand||Estonia|
January 2019 Survey
In our January 2019 special survey of forecast probabilities, in addition to their central (most likely) forecasts in the consensus economic survey, we asked our panellists to assess the probabilities of a range of alternative outcomes for each of the listed variables, i.e. GDP forecasts and consumer price inflation in 2019, as well as for exchange rate forecasts (for the euro, the Japanese yen, the UK pound and the Canadian dollar) against the US dollar by the end of January 2020. This analysis is an attempt to quantify the risk that these economic indicators might turn out to be significantly higher or lower than individual forecasts currently suggest, and allows us to compile consensus probability distributions to identify those areas of greatest uncertainty in the economic outlook for the G-7 industrialized countries.
Consensus forecasts are mean averages of individual panellists’ predictions of the performance of various indicators over a given time. However, most forecasters would also attach some probability to various – perhaps radically different – outcomes or scenarios. These probabilities provide a wider assessment of the risk attached to the consensus and are based on estimates of unexpected or extreme movements in key variables, such as exchange rates or commodity prices. These and other factors could alter a central forecast. Every year in January, we ask our panellists to supplement their central forecasts for GDP growth and inflation for the year ahead with a set of probabilities of the outcomes falling within specified ranges shown in the tables. The ranges differ from country to country and from variable to variable, but were chosen so that the central range (the middle column in the tables and charts) generally encompassed the consensus forecast from last month’s survey.
We also show the probability distributions for oil prices as well as for the major forex cross rates of the G-7 currencies. Here, we ask for the probability of the percentage change in the exchange rate between now and January 2020 falling in seven comparable % ranges. After a mixed performance in 2018, panellists have become less convinced about the GDP growth outlook for 2019. Inflation considerations (a much-discussed risk for the global economy in 2018) are perceived to be lower than they were a few months ago, after a sharp drop in the price of crude oil in Q4. A reduction in energy costs may allow policymakers to proceed more cautiously in the year ahead with regard to planned monetary tightening. Forecasts for US GDP have dimmed, partly due to its trade dispute with China, and an evaluation of the probability ranges show that risks are tilted toward further weakness (with a likelihood of 56% attached to growth of below 2.5%, see bar chart and table below). Countries in Europe face populist challenges (notably in France and Italy, which have seen a loss of budget credibility) and the fallout from an industrial slump in Germany, which could undermine momentum across the Euro zone. In the UK, which is due to leave the EU at the end of March, the immediate fortunes of its economy remain tied to the nature of its departure from the EU, and any associated monetary or fiscal responses.
Forecast Probabilities – United States
After an optimistic first half of 2018, escalating worries over the global economy have begun to weigh on GDP expectations for 2019. Even in the US – where growth is predicted at 2.5% – risks have elevated. The recent stalemate between President Trump and the Democrat controlled Congress, which has seen the government shutdown stretch into an unprecedented fourth week, are increasingly seen to be damaging the economy. A weakening inflation picture, partly influenced by a downturn in oil prices, may allow the US Fed to ease up on monetary tightening in 2019. Still, the lingering trade spat with China has sent shockwaves through global stock markets with far-reaching consequences, including a pronounced growth deceleration in the Euro zone. A series of downbeat Q3 GDP data releases have renewed fears over the bloc’s resilience to tighter financial conditions. Sharp contractions in the often-reliable industrial sector quashed German Q3 GDP activity, leaving the economy flirting with recession. Temporary auto sector bottlenecks may reverse and help support a revival, but the overriding softness in external demand may extend the soft patch. The “Yellow Vests” protests in France, prompted by opposition to fuel price rises, have undermined its prospects. Concessions afforded by President Macron may help to rejuvenate growth later in the year but will stretch France’s public finances. The outlook for the UK has remained stable, though does not encapsulate the intensifying levels of uncertainty caused by Brexit. Investment has faded, but our survey respondents still doubt that it will lead to a sizeable GDP drop-off, for now.
For further information, including economic data on other countries, see the complete study in Consensus Forecasts – G7 and Western Europe, January 2019.