11 September 2009

 

 

 

Recovery-talk has been dominated by a discussion of letters. There’s the rapid V-, the protracted U-, the double-dip W-, and the dreaded L-shaped recovery.

 

Recent positive economic signals have resuscitated hopes of a V-shaped rebound. Is it just hype, or do forecasters generally agree?

 

Opinions are varied and are also in flux, adding to the confusion. But today’s profusion of forecasts has given rise to consensus forecasting – the business of compiling and averaging forecasts – which can help to sort through the mixed messages. The merits of using the consensus outlook have been debated, but given the high current level of uncertainty, a good look at the consensus is illuminating.

 

All eyes are on the second half of 2009. The true shape of the recovery will largely be determined in the path that the global economy takes over this period. But here’s where the consensus gets murky. Forecasts are recorded on an annual basis, so the quarterly progression is not entirely clear. What helps is, knowing that for the third and fourth quarters, growth actually has less influence on the 2009 forecast than on next year’s outlook. As such, a quick look at the 2010 annual forecast actually gives a good idea of the expected quarterly progression of the economy.

 

What do the forecasters see? At first blush, 2010 projections might seem upbeat. After all, the world’s largest economies are returning to growth after punishing declines in 2009. Positive, yes, but in most cases barely so. Take the Eurozone, for instance. After a 4.3% contraction in 2009, pundits expect a rise of just 0.6%. Germany has a big influence on this outcome, with just 0.7% growth forecast for 2010 after a 5.8% decline this year. This implies quarterly growth averaging less than 1% at annual rates for the outlook period. The outlook for both the UK and France is little better, with implied quarterly gains at just over 1%, annualized. Japan is in the same boat. With annual growth pegged at 1.3% next year, quarterly growth averages 1.1%, annualized. As the current outlook stands, the consensus view for well over a quarter of world GDP says that a V-shaped recovery is not on.

 

Are things any better closer to home? The US economy is expected to outperform the other majors, expanding by 2.3% next year. Canada’s outlook is similar. What this implies is quarterly growth that looks like a more impressive 2.5% at annual rates. After what we’ve been through, the growth is a welcomed improvement. But it’s wel