Experts have queued up to give us their predictions for the world economy – but why should we believe them?
After all, few economists saw the last financial crash coming and even fewer have come up with strategies to clear up the mess.
It’s often said economists are around to make the predictions of astrologists look good.
Take the Royal Bank of Scotland research chief for European economics Andrew Roberts.
He forecast stock markets would collapse by 20% and oil prices could plunge to $16 a barrel.
“Sell everything except high-quality bonds,” he said. “This is about return of capital, not return on capital. In a crowded hall, exit doors are small.”
Historical evidence
A year on, world stock markets have soared to new record highs and the price of oil seems stable at around $50 a barrel.
Roberts was not out on his own. Other leading economists at banks Morgan Stanley and Standard Chartered agreed, together with a crowd of respected pundits with years of experience and heaps of degrees between them.
So why do economic predictions go so wrong?
One key reason is predictions are based on historical statistics which may no longer apply, especially if a government or central bank takes a policy decision that influences the economy.
Although Brexit is not a primary factor in the fast-growing British economy, the influence of the falling pound because of the referendum could not have been foreseen.
Uncertain future
As most of the UK’s big companies earn their money overseas, revenues are improving due to currency exchange.
The pundits also expected a fall of consumer demand in China and oil prices to plunge still lower. Neither happened as the Beijing government and OPEC both got their act together in time to prevent disaster.
The future looks uncertain – elections in Britain and France, the inconsistent policies of Trump in the US will continue to change the face of politics in key areas.
Meanwhile, economic forecasters are out in the cold for barely getting any prediction right.
Some say the main function of economists is to be paid billions for writing reports for banks and fund managers to influence investors by rationalising reasons why they should plough money into a project.
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