Economic Forecast Probabilities

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.

Country Coverage

 

 

January 2024 Survey

In addition to their central (most likely) forecasts, our panellists also provided assessments of the probabilities of a range of alternative outcomes for each of the listed variables, i.e. GDP growth and consumer price inflation in 2025, as well as for oil prices and four major exchange rates at end-January 2026. This analysis attempts to quantify the risk of these indicators turning out to be significantly higher or lower than individual point forecasts currently suggest, and allows us to compile consensus probability distributions identifying areas of greatest uncertainty in the outlook for the G-7 industrialized countries. Please note that the percentage probabilities may not always add to 100% because of rounding.

 

 

Consensus forecasts are mean averages of individual panellists’ predictions of the performance of economic indicators at points in time. However, most forecasters would also attach some probability to various outcomes or scenarios. These probabilities provide a wider assessment of risk attached to the consensus and are based on estimates of unexpected or extreme movements in key variables, such as exchange rates or commodities. 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 outcomes falling within specified ranges (continued on pages 28-30). The ranges differ across countries and variables but were chosen so that the central range encompasses the consensus forecast from the December 2024 survey.

We also show (above) the probability distributions for oil prices and the forex cross rates for the G-7 currencies which are somewhat skewed towards depreciation amid a strong US dollar “wedge.” However, just as growth prospects in the G7 (outside the US) appear to be slowing, the Brent oil price – amid falling global oil inventories – has prompted our respondents to assign a 55% average probability to oil prices staying at their current US$60-80 per barrel range. Meanwhile, the threat of US trade tariffs, geopolitical tensions, budget deficit worries and rising borrowing costs, our panel’s expectations are skewing to the downside, particularly for Germany, the UK, Italy, Canada, Sweden and Switzerland. The US (see below) is a notable outlier, with a 49% probability of growth overshooting the current GDP forecast. CPI probability distributions suggest that inflation will mostly fall towards central bank’s targets (around 2%) this year, although the distribution (28%) is slightly skewed towards the higher side for the US also.

Forecast Probabilities – United States

 

 

Uncertainty over the direction of activity, and Federal Reserve decision-making, remains high. Following the December 13 meeting (where the Fed funds rate was left unchanged again at 5.5-5.25%), suggestions of possible interest rate cuts in 2024 set off market speculation regarding the timing of that first cut. We asked our panel this question (page 2). A few expect the first rate cut as early as March 2024, but others have pushed that date to late spring and beyond. This follows a strong December’s jobs report, which added 216,000 payrolls and left unemployment at 3.7%. There are multiple opinions on rate-cut timing because of the uncertainty cited earlier. US activity in 2023 was strong compared with other major economies in Asia, Europe and North America, averaging +2.3% (y-o-y) in the first three quarters of 2023. In q-o-q annualized terms, growth in Q3 2023 expanded at a rollicking 4.9% pace, powered by consumption and inventory growth. However, the US was hit by significant inflation across most categories as well as one of its fastest monetary tightening cycles. Inflation has come down from 8% in 2022 to near 3% most recently, but the last mile in inflation-fighting can be the hardest. Consumer confidence has see-sawed amid deteriorating financial positions and the upshift in price levels for essentials like food, gas, fuel and shelter. Still, anecdotal figures from credit-card companies suggest Black Friday purchases were upbeat, despite high interest rates, depleted pandemic savings and inflation.

While a soft landing for GDP growth is the expectation for this year, possible recession is also being priced in (forecast probabilities, page 3).Elsewhere, US bond issues jumped in H2 2023, as did concerns over debt and higher servicing costs. Fiscal dynamics and politics ahead of November’s election are additional factors weighing on the outlook.

 

For further information, including economic data on other countries, see the complete study in Consensus Forecasts – G7 and Western Europe, January 2024.