Weather and Economic Predictions – Watch the Trends
Weather and Economic Predictions – Watch the Trends
by Elliott R. Morss, Ph.D.
I never believe the first weather forecast I hear. I look for trends. So if the first one predicted rain, the second predicted showers, I conclude that the weather will be better than the first prediction – after all, the predictions should get better, the closer you get to the day that interests you.
Let’s apply this methodology to economic predictions. Last November, the IMF made GDP predictions. And they have just updated them. In Table 1 below, I give their current predictions along with how they differed from their predictions last November. There is no good news: there is not a single country or region where the growth estimate has not been reduced for 2010.
Table 1. – GDP Projections
|
|
|
Feb. 2010 |
Difference from |
||
|
|
Actual |
Projections |
Nov. 2008 Projections |
||
|
Region/Country |
2008 |
2009 |
2010 |
2009 |
2010 |
| World output |
3.4 |
0.5 |
3.0 |
-1.7 |
-0.8 |
|
|
|
|
|
|
|
| Advanced economies |
1.0 |
-2.0 |
1.1 |
-1.7 |
-0.5 |
| United States |
1.1 |
-1.6 |
1.6 |
-0.9 |
0.1 |
| Euro area |
1.0 |
-2.0 |
0.2 |
-1.5 |
-0.7 |
| Germany |
1.3 |
-2.5 |
0.1 |
-1.7 |
-0.4 |
| France |
0.8 |
-1.9 |
0.7 |
-1.4 |
-0.8 |
| Italy |
-0.6 |
-2.1 |
-0.1 |
-1.5 |
-0.1 |
| Spain |
1.2 |
-1.7 |
-0.1 |
-1.0 |
-0.9 |
| Japan |
-0.3 |
-2.6 |
0.6 |
-2.4 |
-0.5 |
| United Kingdom |
0.7 |
-2.8 |
0.2 |
-1.5 |
-0.9 |
| Canada |
0.6 |
-1.2 |
1.6 |
-1.5 |
-1.4 |
|
|
|
|
|
|
|
| Emerging and developing economies |
6.3 |
3.3 |
5.0 |
-1.8 |
-1.2 |
| Africa |
5.2 |
3.4 |
4.9 |
-1.4 |
-0.5 |
| Developing Asia |
7.8 |
5.5 |
6.9 |
-1.6 |
-1.1 |
| China |
9.0 |
6.7 |
8.0 |
-1.8 |
-1.5 |
| India |
7.3 |
5.1 |
6.5 |
-1.2 |
-0.3 |
| ASEAN-5 |
5.4 |
2.7 |
4.1 |
-1.5 |
-1.3 |
| Middle East |
6.1 |
3.9 |
4.7 |
-1.5 |
-0.6 |
| Western Hemisphere |
4.6 |
1.1 |
3.0 |
-1.4 |
-1.0 |
| Brazil |
5.8 |
1.8 |
3.5 |
-1.2 |
-1.0 |
| Mexico |
1.8 |
-0.3 |
2.1 |
-1.2 |
-1.4 |
Source: IMF, World Economic Outlook Projections
Even so, it is somewhat instructive and heartening to see that while advanced economies are projected to grow 1.1% in 2010, emerging/developing economies are projected to grow 5% this year. But I warn you, follow the trends. We know how bad things are in continental Europe, the UK, and the US, and they could get worse.
Let me elaborate on something I said in my prior piece. The fiscal deficits in most Euro countries are in excess of the 3% (fiscal deficit/GDP) Euro rule. For example, Greece has a deficit ratio of 13% with 10.6% unemployment while Spain has a budget deficit of 11.4% with a 19.5% unemployment rate. So they will be forced to reduce their deficits just at the time they should be increasing their deficits to reduce unemployment!
The IMF has made similar projections for world trade, and they are presented in Table 2 below. So far, they have reduced this year’s projection for world trade by 2.5%. And it could get worse.
The differences between the advanced and emerging/developing countries remain astounding: imports are projected by 5.8% in the latter and by only 1.9% in advanced economies. The same pattern holds for exports: up 5.4% in emerging countries and only up 2.11% in advanced economies.
Table 2. – World Trade Projections
|
|
|
Feb. 2010 |
Difference from |
||
|
|
Actual |
Projections |
Nov. 2008 Projections |
||
|
Region/Country |
2008 |
2009 |
2010 |
2009 |
2010 |
| World trade volume (goods and services) |
4.1 |
-2.8 |
3.2 |
-4.8 |
-2.5 |
| Imports |
|
|
|
|
|
| Advanced economies |
1.5 |
-3.1 |
1.9 |
-3.0 |
-1.8 |
| Emerging and developing economies |
10.4 |
-2.2 |
5.8 |
-7.0 |
-3.6 |
| Exports |
|
|
|
|
|
| Advanced economies |
3.1 |
-3.7 |
2.1 |
-5.0 |
-1.8 |
| Emerging and developing economies |
5.6 |
-0.8 |
5.4 |
-5.8 |
-3.5 |
Source: IMF, World Economic Outlook Projections
These factors, coupled with the deleveraging piece by the McKinsey Global Institute, provide adequate reason to be quite pessimistic. For the investor, the road ahead will probably be quite rocky with many ups and downs.
Growth and debt considerations favor emerging market investments.
