Upwardly Mobile: Forecasts for Economic Growth Have Been Revised Upwards Once Again. David Ross Warns That, While This Is Good News for Most National Economies, It Could Be Overoptimistic. (Economics)

By Ross. David | Financial Management (UK), May 2002 | Go to article overview

Upwardly Mobile: Forecasts for Economic Growth Have Been Revised Upwards Once Again. David Ross Warns That, While This Is Good News for Most National Economies, It Could Be Overoptimistic. (Economics)


Ross. David, Financial Management (UK)


If a week is a long time in politics, six months is a lifetime for economic forecasters. After 11 September they rushed to revise their forecasts for 2002 downwards--many predicted that the world's leading economies would experience recession this year. Such predictions created a bungee jump effect: where the initial reaction to 11 September was too great, there is now a danger of overreacting in the opposite direction.

It is obviously gratifying that the US slowdown proved to be shallow and did not turn into a recession. This was largely because of strong consumer spending and a resilient housing market. Recent research by The Economist suggests that a strong housing market, helped by historically low interest rates, was the main reason why several countries performed better in the past six months than business confidence surveys suggested. As The Economist noted, it is no coincidence that Germany and Japan, which have both experienced recessions, have had weak housing markets recently.

Each month The Economist surveys a number of forecasters and calculates the average of their predictions. In April the panel revised up its forecast for GDP growth in 13 of the 15 countries it surveys. Perhaps not heeding the Federal Reserve chairman's words of caution, the panel revised its forecast for US GDP growth this year from 1.7 per cent to 2.5 per cent. Its next-largest revision is for Canada, where the growth forecast has been revised from 1.7 per cent to 2.3 per cent.

The soothsayers have been keen to revise their forecasts for the euro area, where growth is now expected to be 1.3 per cent (1.2 per cent in March). None of the leading economies is likely to grow at or near potential--France is expected to top the growth league with an expansion of only 1.5 per cent, followed by Italy with 1.3 percent and Germany with 0.9 per cent. More encouragingly, Spain is forecast to see growth of 2 per cent.

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Upwardly Mobile: Forecasts for Economic Growth Have Been Revised Upwards Once Again. David Ross Warns That, While This Is Good News for Most National Economies, It Could Be Overoptimistic. (Economics)
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