This month, we explore Significant Changes in Long-Term Forecast Trends for GDP and Inflation for the US, Japan, Germany, France, the UK and Canada. Long-term projections for the 6-10 year aggregate period (in this case 2017-2021) are contrasted with those long-term aggregate growth rates published all the way back to April 1996. It is this rolling 6-10 year trendline average which we show in the charts below. We collect the consensus mean forecast for each of the next five years individually and then as a trendline average for years 6-10. This construct has two problems, though. One is that the 6-10 year horizon is a moving target shifting forward one year, each year. The other is that the number of panellists responding to our long-term surveys is often smaller and so less representative than the numbers responding to our one and two-year surveys on pages 4-24 of Consensus Forecasts. Nevertheless, these 6-10-year trend averages shown in the charts remain a measure of changes in potential growth and inflation expectations.

The short-term outlook for many G-7 and Western European countries appears to have improved in recent months. The US resurgence in external demand is stoking consensus forecasts for GDP, investment and industrial activity. Personal consumption is currently growing at a less robust pace than production – held back in part by uncertain job fundamentals – but compared with three years of marked weakness, the 2011 forecast of 2.8% is notably solid. However, the shadow hanging over all Long-Term Forecasts remains that of indebtedness. First there was the accumulation of household and financial debt, exacerbated in the US, the UK and Spain by the channelling of equity into the housing market. This helped to propel the world economy into recession at the end of 2008. The mounting cost of government bailout packages, coupled with the collapse in the tax base during the downturn, has now shifted the spotlight onto the state of public finances, and this could well have longer-term repercussions on the GDP outlook. For example, the US Federal budget soared to an unprecedented US$1.413tn in FY2009; the inability of Congress to decide on the size of cuts to be made and taxes to be increased is adding to the uncertainty. The pace of GDP growth is expected to moderate after 2014. Meanwhile, in the UK, austerity measures are being introduced in order to reduce a massive public sector shortfall. In the Euro zone, financial and fiscal collapse in Greece, Ireland and, most recently, Portugal has shaken market sentiment in the euro currency. Spain’sregional banks are also facing capital needs; GDP forecasts for the Spanish economy do eventually show a rebound, albeit at a relatively soft pace. Indeed, Japanese, German, French, Italian and Euro zone long-term expectations for economic activity are also positioned below those for North American GDP growth, thanks to relatively stronger productivity cycles and flexible labour and price markets in the US and Canada, Japan and Western Europe face an additional future fiscal crunch on the back of an aging working population and low post-war birth rates.

United States – Long-Term 6-10 Year Forecasts	Japan – Long-Term 6-10 Year Forecasts
Germany – Long-term 6-10 Year Forecasts	France – Long-Term 6-10 Year Forecasts