This is the time of year when the major teams of macroeconomic forecasters in the financial markets produce their annual outlooks for the next 12 months, so I would like to discuss what these forecasts are telling us about a key question facing policymakers and investors: has the 2011-2012 downturn in the global economy now touched bottom?
Although long and painful experience suggests these year-ahead economic projections will need to be revised considerably in the course of the coming year, they have been shown to contain information that is better than can be derived by naive rules (such as statistical extrapolations, for example). To add, economic forecasts are widely used to determine economic policy. Finally, investors need to know what is “priced in” to the economic consensus so they can gauge the likelihood of future surprises that will have an impact on asset prices. Read more