Predicting inaccuracy in economic forecasts

 

sunkenkirk

Government and business planners need accurate economic forecasts to make optimal decisions.  Investors too need accurate economic forecasts as part of evaluating future company profits.

There are times when economic forecasts are quite accurate: this is usually when there is little variation from recent trends.  There are also times when accuracy is very poor.

It would be valuable to be able to predict when economic forecasts can be relied upon and when they are likely to be inaccurate.  This is important for risk management and appears to be possible, at least in Australia.  There are circumstances when official forecasts are likely to be most inaccurate.

I have identified the conditions under which GDP forecasting inaccuracy is greatest.  My report is available at foreseechange.com.au.

Charlie Nelson

 


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What voters want politicians to achieve

In September 2017, in a regular survey of the Australian general public, foreseechange asked respondents about the likelihood that particular events would occur in the next year.

One of those was that Malcolm Turnbull would be replaced as Prime Minister.  The Wisdom of the Masses estimated likelihood was a 53% chance.  As a federal election was unlikely in the following year, this result means that it was perceived to be a slightly better than 50/50 chance that Turnbull would be dumped by his own party.

Just under a year later, this seems almost certain to happen today.

Another component of the foreseechange survey is canvassing opinions on the issues people feel they will be most concerned about in the foreseeable future.

Number one in June 2018 was the cost of living.  Despite consumer price inflation being only 2%, at the bottom of the Reserve Bank of Australia’s target zone, consumer price expectations are over 4% and wages are only growing by 2%.  Politicians have to do something about this gap if they want to be popular (so to for employers!).

Of course, there are many other issues that segments of the population are concerned about, such as housing affordability, traffic congestion, and climate change.

Malcolm Turnbull’s likely replacement as PM seems unwilling to do anything about climate change, for example.

If politicians do not understand, and act on, the concerns of all Australians then the revolving door for Australian prime ministers since 2009 looks set to continue at a fast pace.

Charlie Nelson