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 2021 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.
The spread of the more transmissive ‘Delta’ Covid-19 virus variant in recent months has opened up the gap in the relative growth performance expected between countries that have robust vaccination programs (largely centred in developed economies) and those that do not (mostly in Africa, Asia and Latin America). Uninoculated parts of the world are more susceptible to the imposition of strict virus containment measures as governments seek to protect public health, even at the expense of growth and investment. Certainly, health linked factors will be highly determinant of macro performance in several countries, which in turn impact currency sentiment. The outlook for inflation and short term rate differentials have also been in the spotlight, as shortages of raw materials, manufactured goods, shipping capacity, and labour, have contributed to increased cost pressures. As countries reel from the damage caused by the pandemic and remain in need of state support, the threat of inflation (the differential with respect to the US is ranked between 4.3 and 6.8 for the G-7) has caused several of them to bring forward discussions over tightening monetary policy (ranked 5.0 and 7.4 for short term rates for the same group).We also received a variation of responses in the ‘other factors’ category and show the most often quoted in the final column of the table on page 34. Perceived risks clearly plays a role, with traditional safe haven destinations quoted at one end of the risk spectrum (notably the US, Japan, Switzerland), whereas difficult political and policy environments were underlined for some toward the other end (Israel, Sweden, Malaysia, Turkey, Chile, Peru and Mexico.)
Source: Foreign Exchange Consensus Forecasts, August 2021.
In our February 2021 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 2033, 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. In the United States, the first lockdown came with major job cuts (in the week to April 4 alone, 6.6mn people filed jobless claims, and the unemployment rate soared to 14.3%). This illustrates the US’s more instantaneous hiring/firing culture. The job-shedding was accompanied by significant increases in unemployment insurance, allowing claimants to ‘get by’ during the first months. Economies in Western Europe unleashed major stimulus to protect workers’ wages and jobs, including short-time work schemes and paid furloughs, the latter guaranteeing a portion of salary for people to remain at home. This was to avoid mass unemployment (and major jobless payments). Consequently, the drop in Total Employment in European economies was significantly smaller in 2020 compared with the US (-6.2%) and Canada (-5.2%). This left US productivity in positive territory at +2.9% in 2020, in line with the Bureau of Labor Statistics nonfarm labor productivity per hour (a different definition from our’s) which jumped in 2020 by +2.6%. These productivity gains compare with our survey’s calculated declines (some of them sizeable) for Japan, Germany, France, UK and Italy. Productivity rates across countries may ‘normalise’ after 2021 and 2022, but the pandemic has highlighted potential productivity improvements, like remote-working and automation. This may spur investment/R&D and enable firms to boost operational efficiency, but could have seismic and disruptive impacts on society in terms of jobs, firms, supply chains, industries.
For further information, including economic data on other countries, see the complete study in Consensus Forecasts – G7 and Western Europe, February 2021.
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.