October 21, 2009

Old joke may be unfair, but economists do differ…so what’s your view?

Remember that old joke about laying all the economists in the world end-to-end and them still not reaching a conclusion?

Very unfair, of course. The fact that we, at Vistage UK, believe in economic forecasting is easy to see – just look at the regular predictions we issue, prepared by Roger Martin-Fagg, one of the best practitioners around.

I was reminded of that old insult, however, when I read reports this week that the Ernst & Young Item Club believes the UK economy is already out of recession. That view is expected to receive backing later this week when the Office for National Statistics announces economic output was either flat or headed upwards in the third quarter of the year.

Before you rush out to celebrate, however, be warned that not even the comparative optimists of the Item Club are suggesting choruses of Happy Days Are Here Again are appropriate yet. They expect the economy will “bump along the bottom” for the next 18 months or so, growing by a mere one per cent next year, compared to the almost unprecedented 4.5 per cent collapse in output during 2009. They also say interest rates will remain very low for many years, as the economy struggles to regain full power, following the recent problems. 

The Item Club’s view does contrast pretty starkly with that of Roger, however, who predicts GDP growth will actually be W-shaped, with a slight recovery this autumn being due to restocking and proving strictly temporary, as households and companies continue reducing their debt in the months ahead. He says that by 2012, the UK economy will be no bigger than in 2005.

If that hasn’t made you depressed enough, Roger also believes that: unemployment, particularly among the under-25s, will keep rising; credit will continue being hard to obtain and expensive, with the era of cheap money not returning until 2017; the high level of business failures will be maintained; and there’ll be no resurgence of commercial or residential property prices. I could go on, but there may be sharp objects around…I think you get the drift.      

There’s therefore clearly a divergence of view between the Item Club and experts like Roger, over the shape of the curve in the foreseeable future. So it would be fascinating to hear how things look from your viewpoint: do you agree with one of them or hold a completely different view? Why not drop us a line and let us know?

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