It is Obvious

Chris Rick has got altogether too much to say

Predictions

Posted by chrisrick13 on August 27, 2011

It is obvious: you can make accurate predictions about the economy

The first two quarters this year saw GDP growth at 0.5% and 0.2%.  Of course you have to remember that in the last quarter of 2010 the economy shrank by 0.5% due to it being so cold and in the second quarter this year, grew by only 0.2% due to it being so hot.  These figures are not that accurate or useful.  They do give a relative feel for things and have a large effect as so many people act based on that headline number.

At the moment the treasury prediction for UK growth stands at 1.7% for the year.  The quarterly figures cannot simply be added up…but it is close enough.  So for half the year GDP growth stands at 0.7%.  This implies that over the second half of the year the economy will grow by 1%.  We will be doing better than in the first half of the year by a considerable margin.  Have a look around.  Do you think that we will be doing more in this half?  The US economy is, frankly, in a mess and slowing.  Europe has its own super crisis and is slowing.  These two represent our major trading partner…the opportunities for exporting.  Inside the economy the government is lurching round to spending less, but has yet to achieve that, everyone is saving like mad (except me).  Is there going to more of the enemy, growth, in this half?

If we matched first half growth in the second it would be positive proof of miracles.  1.4% is extremely optimistic.  The treasury publishes an average of independent forecasters’ predictions which is 1.3% at the moment, which gets closer to realism.  1% growth for the year is an extremely optimistic forecast.

So sit there a moment and think of the obvious.  What does your estimate at growth come out at?  Why do the Treasury and BoE estimates never come out low?  Why can they never do better than even the ‘man on the street’?

The Treasury average for independent predictions of inflation is 4.5%.  At the moment it is 4.4%.  This is more difficult to predict as what is being measured is very hard to tie down.  The BoE predicts that it will reduce…which they have said for some time now.  However as they are carrying out policies that will increase inflation either they are lying or they are expecting deflation to come out of left-field and won’t tell us what it is.

Given the generous interpretations of such terms as ‘temporary’, ‘medium-term’, and ‘2% inflation target’ I want to make a prediction:  England to win the world cup in 1966.

It is obvious: you can make accurate predictions about the economy relative to the performance of anyone with a vested interest

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