16/05/2011
G7 Long-Term Forecasts
This month, we explore Significant Changes in Long-Term Forecast Trends for GDP and Inflation for the US, Japan, Germany, France, the UK and Canada. Long-term projections for the 6-10 year aggregate period (in this case 2017-2021) are contrasted with those long-term aggregate growth rates published all the way back to April 1996. It is this rolling 6-10 year trendline average which we show in the charts below. We collect the consensus mean forecast for each of the next five years individually and then as a trendline average for years 6-10. This construct has two problems, though. One is that the 6-10 year horizon is a moving target shifting forward one year, each year. The other is that the number of panellists responding to our long-term surveys is often smaller and so less representative than the numbers responding to our one and two-year surveys on pages 4-24 of Consensus Forecasts. Nevertheless, these 6-10-year trend averages shown in the charts remain a measure of changes in potential growth and inflation expectations.
The short-term outlook for many G-7 and Western
European countries appears to have improved in recent months. The
US resurgence in external demand is stoking consensus forecasts
for GDP, investment and industrial activity. Personal consumption is currently
growing at a less robust pace than production – held back in part
by uncertain job fundamentals – but compared with three years of marked
weakness, the 2011 forecast of 2.8% is notably solid. However, the shadow
hanging over all Long-Term Forecasts remains that of indebtedness.
First there was the accumulation of household and financial debt, exacerbated
in the US, the UK and Spain
by the channelling of equity into the housing market. This helped to propel
the world economy into recession at the end of 2008. The mounting cost of
government bailout packages, coupled with the collapse in the tax base during
the downturn, has now shifted the spotlight onto the state of public finances,
and this could well have longer-term repercussions on the GDP outlook. For
example, the US Federal budget soared to an unprecedented US$1.413tn in
FY2009; the inability of Congress to decide on the size of cuts to be made
and taxes to be increased is adding to the uncertainty. The pace of GDP
growth is expected to moderate after 2014. Meanwhile, in the UK,
austerity measures are being introduced in order to reduce a massive public
sector shortfall. In the Euro zone, financial and fiscal
collapse in Greece, Ireland and, most
recently, Portugal has shaken market sentiment in the euro
currency. Spain’s regional banks are also facing
capital needs; GDP forecasts for the Spanish economy do
eventually show a rebound, albeit at a relatively soft pace. Indeed, Japanese,
German, French, Italian
and Euro zone long-term expectations for economic activity
are also positioned below those for North American GDP growth, thanks to
relatively stronger productivity cycles and flexible labour and price markets
in the US and Canada, Japan
and Western Europe face an additional future fiscal crunch
on the back of an aging working population and low post-war birth rates.
Year Forecasts
Year Forecasts
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