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 2020 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.
While we asked our FX panellists and other economists to assign scores to six traditional factors (listed on previous page) as independent variables, it is clear that they are interlinked to some extent. Large government budget deficits, for example, tend to be inversely related to currency values, as a consequence of their indirect impact on expected inflation and interest rates. These, in turn, affect credit scores and private sector investment, which tend to shape GDP growth trends. In our updated survey we include the US dollar (the world’s reserve currency) as an exchange rate from which our panellists are able to score, not against an equivalent from any particular country or region, but in relation to perceptions about its international role. In the first few months of 2020, the relative strength of the American economy gave the US dollar an advantage on a macro basis. Yet fears about the surge in domestic Covid-19 infections rates (in contrast to signs of containment in Asia and Europe) have since weighed on dollar sentiment. Certainly, the lack of a clear virus action plan, news of a sharp contraction in US Q2 GDP growth and the now likely to be more enduring reversion to ultra-accommodative policy by the US Fed have caused the US currency to lose part of its earlier appeal. In contrast, the EU reached agreement on a coronavirus relief program last month, which has lifted confidence in the battle to overcome the health crisis. The far right column of the table on page 34 shows the most often cited or highly ranked factors affecting an exchange rate, and the EU fiscal response (score 7.7) was frequently mentioned as a key influence for the euro.
Source: Foreign Exchange Consensus Forecasts, August 2020.
In our February 2020 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 2032, 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) remains downbeat. According to other, recently-published analyses of productivity (usually measured as economic output per hour of work), the 2008 financial crisis cast a long shadow over the productivity picture, curbing corporate and consumer spending, as well as significant fiscal cutbacks. Many industries in Western Europe and North America have also languished in the face of higher output, longer working hours and lower wages in other parts of world. This chronic under-investment reduces potential growth and, in turn, a country’s future prospects for maintaining (not to mention lifting) standards of living. Still, Germany’s high-tech industries have been a bright spot, thanks to rapid IT evolution and a skilled workforce, although last year’s tariff war volatility did hit manufacturers, and the coronavirus crisis could hinder their comeback in early 2020. Populist policy pushback against globalisation and jobs lost to cheaper hubs abroad could also potentially change productivity patterns. Elsewhere, the US Bureau of Labor Statistics’ measure of nonfarm productivity (hourly output per worker) rebounded in Q4 2019 after a poor Q3 showing, keeping unit labor costs in check. However, this measure has hovered around +1.3% in 2007-2019, below its long-run average of +2%. The consensus measure of output per employee, suggests that US productivity growth will decelerate to 0.8% in 2020 and not rise above 1.3% thereafter. Still, stronger growth fundamentals have helped to keep US output per worker above Germany and Japan (see chart, front page). Recent UK academic and Industrial Strategy Council research show UK productivity growth at a particularly low point, beset by stark regional differences. Our output per employee measure for the UK did not even grow last year.
For further information, including economic data on other countries, see the complete study in Consensus Forecasts – G7 and Western Europe, February 2020.
In our January 2021 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 2021, 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 2022. 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 the December 2020 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. Interestingly, the currency and stock markets have seemingly decoupled from current economic fundamentals. Part of this is due to the fact that the current global recession is a public health problem and not due to an economic or financial meltdown per se. After an initial blip in spring 2020, oil prices have also firmed. GDP and CPI probability distributions for many G-7 and Western European economies do not show as even a distribution pattern. The ranges set are wider than our usual boundaries, due to outsized base year effects following the depth of last year’s decline. In the case of the US, there is a 36% probability to GDP growth ending up above the current +4.4% consensus. By contrast, Japan, Germany, the UK and Italian panels appear to be wavering in their central forecasts, opening up the possibility of further downgrades to come.
Amid the unprecedented disruption fuelled by the global coronavirus pandemic, forecasts for 2021 Real GDP Growth have fluctuated sharply this month, and the standard deviations remain unusually high as experts attempt to gauge how quickly economic growth might recover toward pre-crisis levels. In any event, only the US is expected to achieve an overall net gain in GDP over 2020 and 2021, supported by new stimulus from the Biden-led government. Other selected economies will struggle in the wake of fresh lockdowns in early 2021, as the second wave stretches health services to their limits. As well as enduring the steepest plunge in growth in 2020, optimism in the UK outlook has dropped markedly since October, even after a Brexit deal was struck with the EU at the eleventh hour. The GDP consensus dropped a full percentage point this month to +4.3%, while downgrades among European countries (Germany and France) have also been noticeable, as doubts creep in over the huge logistical challenge of vaccinating large populations rapidly, and the prospect of further anguish in services and tourism if social and travel restrictions are prolonged. High frequency data has, at least, signalled that manufacturing has been gradually gaining resilience. In Japan, lower inflation expectations reflect renewed price weakness due to the slump in demand. Despite years of policy stimulus to restore price stability, policymakers are discouraged by the GDP outlook.
For further information, including economic data on other countries, please enquire about the Consensus Forecasts – G7 and Western Europe publication from January 2021.