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

In recent blogs in this series, I have described the immediate outlook for US GDP growth as “surprisingly strong”.  By coincidence, Jim O’Neill, my ex-colleague at Goldman Sachs, wrote a piece for the FT on Tuesday in which he argued that the strength of the recovery in the US economy would be one of the surprises of the year. These assessments have been seen by some as far too optimistic. Clearly, the US economy remains plagued by excessive debt and a chronically under-employed labour market. Furthermore, in a longer term context, the present recovery has not been sufficient to reverse the slow growth rate in the US economy in the past decade. So I have been re-assessing the case for “optimism” on the US. Read more