Expected Growth in 2011

January 10, 2011

The latest issue of The Economist includes a new monthly survey of forecasters’ growth and price forecasts for a variety of advanced economies.  A significant upward revision was made to predicted U.S. growth to 3.0% from a forecast of 2.6% in the December survey.  Projected 2011 growth rates in the euro area and Japan were also revised higher but only by 0.1 percentage points to 1.5% and 1.4%.  The forecast for Britain, where value added taxes were hike to 20% from 17.5% this month and where the latest service-sector and construction-sector purchasing manager indices weakened sharply, was nonetheless left unchanged at 1.9%.

The new growth expectations appear to reflect a considerable degree of uncertainty in the outlook.  These monthly surveys introduce a new year each March.  The earliest published projections for 2011 were unveiled in March 2010, and the survey will include 2012 for the first time in the upcoming March survey.  When introduced initially, the forecasts for the out-years generally conform to notions of each country’s rate of potential GDP expansion.  As time passes, more information gets known about the out-year, uncertainty diminishes, and projections are modified to reflect unique features of the current business cycle.  One would expect a forecast of 2011 growth made in January 2011 to be different from one made ten months earlier, possibly to a substantial extent.

Instead, the latest survey results are very similar to those made last March.  In March 2010, analysts projected growth of 1.4% in Euroland versus a forecast of 1.5% now.  They predicted Japanese GDP would climb this year by 1.6%, just two-tenths faster than the current expectations.  Projected British growth has been bumped down also by just 0.2 percentage points even though the massive dose of fiscal restraint by the Conservatives could not be anticipated before the U.K. election and ten months ago.  A projected 2.9% U.S. growth was projected ten months, and now analysts are looking for 3.0%.  By hardly changing forecasts from those made when information was scarcest, participants in the survey implicitly concede they are barely more confident about economic trends in 2011 than they were nearly a year ago.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.


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