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 2016 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.
Trends in growth and inflation are closely watched in a climate of high volatility and speculation. US monetary tightening in 2016 has thus far been elusive, due to a lack of momentum in the economy. However, recent solid monthly employment readings continue to fuel speculation about a possible rate hike before year-end. Some countries in Latin America have been forced to raise rates or retain a bias toward monetary tightening to combat inflation, namely Colombia. Related currency strength, through yield seeking capital inflows, has raised the risk of FX intervention. Among the major countries, bond yields (which are inversely related to price) have dropped to levels that suggest economic difficulties ahead. Weak fundamentals and low fixed income returns, though, have not deterred capital flows to Japan. The yen has surged more than 15% in the year to date and some observers expect it to head toward ¥95 per US dollar in the near term. In Switzerland, where short term rates are negative, the willingness of investors to pay a country to hold their funds may partly reflect expectations about currency strength. In addition to the factors ranked at our request by panellists, we also asked for suggestions of others. The far right column in the table on the previous page shows only the most often cited or highly-ranked, with the exception of a few currencies for which two main factors were both frequently cited.
Source: Foreign Exchange Consensus Forecasts, August 2016.
In our August 2017 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 2029, 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.
Trends in Productivity & Wages in the G-7 and Western Europe (measured as Real Output per Employee) remain lowkey in most countries. Even in the US – where rates of real output per employee are higher than in Western Europe – productivity growth of +1.5% has become rarer over the past decade. In the late 1990s and early 2000s, these rates reached upwards of 2.5%, with the US undergoing a ‘virtuous circle’ of rapid IT evolution hand-in-hand with a booming jobs market. Technological change continues apace as economies move towards greater automation. Moreover, labor reports continue to show strong gains in US employment. However, the Great Recession and its aftermath appear to have stifled real wage growth. Moreover, there are questions over whether official measures of productivity fully account for changes in technology and growth in non-tangible service industries. The US Bureau of Labor Statistics’ productivity measure, nonfarm business employee output per hour, showed an annualized 2.9% jump in Q2, but in y-o-y terms productivity remains at 1.3%, close to our panel’s own projections.
In Japan, stagnating activity and low unemployment has weighed on the country’s productivity cycle, which has slowed. Indeed, this year is expected to see a -0.8% decline in output per employee, on the back of stronger job gains. In the Euro zone, stronger growth last year helped to offset a jump in job hiring which in turn boosted productivity close to 1%. However, as growth slows after 2020, that pace in productivity should moderate. Wage forecasts for many countries featured here are notably higher than productivity growth. This has lifted estimates for unit wage costs. A decade of low wages, high joblessness and muted growth have left their mark across Europe and post-industrial parts of the US, and consequently moves towards higher productivity may no longer be politically or socially feasible.
For further information, including economic data on other countries, see the complete study in Consensus Forecasts, August 2017.
In our January 2017 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 2017, 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 2018. 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 2018 falling in seven comparable % ranges. Interestingly, many panellists ascribe a higher probability to GDP growth and inflation surpassing their central forecasts, namely for those covering Japan, the UK, Italy, the Euro zone, Norway and Spain. Indeed, going into 2017, there seems to be new-found optimism over the outlook which was missing this time last year when oil prices were near recent lows, deflationary pressures became more entrenched and Chinese financial jitters raised fears of another global crisis.
Recent 2017 GDP forecasts for the G-5 countries are indicating signs of slight improvement. In the UK, this recovery follows a setback to the outlook in the wake of Brexit. Even now, the GDP consensus remains well below expectations prior to the vote. Germany and France also suffered from some loss of sentiment in the immediate aftermath, but have since stabilised. The US outlook for GDP has strayed little from earlier forecasts. The surprise presidential victory for Republican Donald Trump triggered little unrest on the financial markets and, in fact, the stock market and US dollar have made broad gains. With the economy supported by strong jobs and earnings data, the Federal Reserve raised interest rates in December for the first time in a year. President-elect Trump’s planned spending splurge may speed up the rate of policy normalisation in the US going forward and provide more support for the dollar. In Japan, the failure to raise growth and inflation has led the government to delay a planned consumption tax hike for this year until 2019, and this may account for some of the uptick in GDP growth prospects. Despite extremely accommodative monetary policy, the Bank of Japan has been unable to kick-start inflation. The ECB has also encountered a prolonged period of deflationary pressures in the Euro area, although a sudden surge in December 2016 has buoyed expectations. A rebound in oil prices has contributed to this, while firms are facing an increase in factor costs. This has also been evident in the UK economy, following a heavy slide in sterling.
For further information, including economic data on other countries, see the complete study in Consensus Forecasts, January 2017.