Polls on Topical Issues
In addition to regular monthly surveys of economic forecasts, Consensus Economics also undertakes special surveys for long-term forecasts, quarter-by-quarter forecasts and many other economic-related topics. We set out below examples of three of our recently conducted special surveys.
In our August 2022 special survey of factors affecting exchange rates, we asked our panellists to rank the current importance of a range of different factors in determining exchange rate movements (against the US dollar, unless otherwise noted). Scores were assigned to each of the factors shown in the table below on a scale of 0 (no influence) to 10 (very strong influence). The consensus results are the averages of individual panellists’ scores for each factor. Given that different currencies are influenced by a wide range of factors, we have limited the variables considered to a common list of six factors which we asked our panels to assess for every currency. In addition, we asked panellists to suggest, and rank, other factors which they felt to be of particular importance. The most frequently cited (if any) of these for each currency appears in the right-hand column.
Exchange rates are clearly influenced by a wide range of different factors, and the importance of each varies both from country to country and, for any given currency, over time. The special survey (sample above) is an attempt to compare and rank the differing degrees of sensitivity with which different currencies respond to these various influences. In addition, as these influences are frequently pushing in different directions, it should also help to determine which factors are likely to dominate.
In March 2022, when we last conducted this special survey, the consensus had raised quite significantly the importance of ‘inflation differentials’ as an explanatory variable for FX movements. That followed the onset of an upsurge in CPI that has since worsened, due to an unrelenting barrage of supply chain disruptions and soaring food and energy bills. More central banks have responded by bringing forward rate hikes to avoid a situation in which they lag too far behind the curve and the policy tightening of their peers. It is no surprise, therefore, that ‘interest rate differentials’ retain their traditional high importance, with the currencies of countries trailing the US rate cycle under pressure. A reversal of policy accommodation, though, is not without risks, as it could expose countries that may not be resilient enough to cope with significant liquidity withdrawal. Indeed, many panellists now see a possible recession toward the end of 2022 or in 2023 in the light of its timing and severity. ‘Relative growth’ ranks highly in terms of influence for all currencies, as countries that run ahead of others attract more capital flows, and vice-versa. In our ‘other factors’ category, ‘commodity prices’ feature prominently. Exporters of metals and energy may benefit from an improvement in their terms of trade. Yet, despite its stranglehold over European natural gas supplies and certain key materials, the situation with Russia is complex, given its war in Ukraine, Western sanctions, and debt finance considerations. Only China received a mention of ‘Covid’ as a possible factor that could negatively affect the renminbi outlook, due to the heavy economic cost of Beijing’s zero tolerance approach. The risk of a miscalculated escalation in recent China-Taiwan tensions has also featured.
Source: Foreign Exchange Consensus Forecasts, August 2022.
In our February 2022 special survey of trends in productivity and wages, we asked for our panellists’ projections for total employment growth and wage or employment costs between now and 2034, along with real and nominal GDP growth forecasts over the same period. Using indices derived from these projections, we have calculated forecasts for broad measures of productivity growth (real and nominal GDP per employee) and an indicator of unit wage costs (calculated by dividing the employment cost indices by the indices of real GDP per employee). Although some of the wage definitions used are imperfect measures for total compensation per employee, our calculated indices do provide a general indication of future trends in unit wage costs.
Our Trends in Productivity & Wages survey (measured as Real Output per Employee) comes with a disclaimer. These productivity estimates are not broadly comparable across countries in the current environment, because governments took different approaches to mitigating the economic shock from Covid-19. Real Output Per Employee estimates for the US recorded a +3.0% advance in 2020, due largely to the -6.2% collapse in total employment. This outpaced the -3.4% decline recorded in overall GDP. By contrast, Real Output Per Employee in 2020 in Japan, Germany, France, the UK, Italy and the Euro zone saw significant contractions, and the decline in employment was far smaller than that of GDP. Productivity rebounded strongly in 2021. Going into 2022 and beyond, the pace of Real Output Per Employee for the vast majority of economies is expected to slow noticeably to pre-crisis growth rates ranging between 0.3-1.5%. This underscores longstanding productivity weakness, perhaps due to aging demographics and slowing economies. Only Germany is expected to see slightly stronger productivity. The rapid turnaround in remote working highlighted labour markets’ resilience and flexibility, and many observers believe that this will be a future pattern – although there is still debate about whether this will lift productivity over the medium-term (the pandemic also reinforced preferences of humans to meet, learn and socialise in person). And not all people-facing services can offshore work remotely. Still, this and automation represent a structural transition. The spotlight on inflation has drawn attention to our panel’s Unit Wage Cost forecasts which are expected to rise significantly in the US.
For further information, including economic data on other countries, see the complete study in Consensus Forecasts – G7 and Western Europe, February 2022
In our January 2022 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 prices in 2022, 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 2023. 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 outcomes falling within specified ranges. The ranges differ across countries and variables, but were chosen so that the central range generally encompasses the consensus forecast from last month’s survey.
We also show the probability distributions for oil prices and the forex cross rates for the G-7 currencies which are pretty evenly distributed in inverted-V shape. Stock markets have boomed on the back of the major liquidity push from the US Federal Reserve, European Central Bank and others. However, with inflation accelerating across the G7 (on the back of energy prices), central banks are looking to unwind quantitative easing and return to interest rate hikes this year. This could take the froth off of currencies and stock assets. Oil prices, though, have jumped. GDP and CPI probability distributions for many G-7 and Western European economies (see pages 28-30) have been affected by Omicron pushing up infections to record highs and inflationary pressures impinging on activity. Respondents for Germany, the UK, Canada, Euro zone, the Netherlands and Norway have assigned a noticeable probability to GDP skewing lower than their central forecast for 2022. CPI probabilities for many are skewing on the upside.
Forecast Probabilities – United States
With the Omicron variant causing further Covid disruption across the G7 & Western Europe, forecasts for 2022 real GDP growth have taken a hit this month. The GDP consensus for the US, Japan, Germany and the Euro zone started trending noticeably downward in October, when concerns over surging natural gas prices upended initial expectations. All countries featured except Japan are now seeing 2022 CPI projections of above 3% – and close to 5% for the US and UK. Price pressures crept up for much of 2021 on the back of Covid resurgences and ongoing supply-chain bottlenecks. However, the October jump in energy costs exacerbated concerns that inflation was becoming less transitory (and more entrenched) than policymakers had hoped. Many central banks are now aiming to wind down QE and return to interest rate normalization: the Bank of England at its December MPC meeting raised the Base Rate to 0.25%. Given the deep economic recessions of 2020, activity ever since has been buffeted by stop-start Covid restrictions. Since late-November 2021, the emergence of a more contagious variant, Omicron, has provoked breakthrough infections in the vaccinated as well as the unvaccinated. Soaring case numbers have put renewed pressure on heathcare systems and resulted in further restrictions. Our panel’s investment forecasts have dropped noticeably in recent months, with Germany particularly affected by global supply-chain difficulties hitting its exporting industries. UK investment has also been curtailed by added Brexit strains.
For further information, including economic data on other countries, see the complete study in Consensus Forecasts – G7 and Western Europe, January 2022.