Hurrah! An optimistic economic forecast proves to be correct

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I’m AN economist, or at least I was before giving up the day job. We economists like to think we are pretty smart, which is a bit of a stretch given our well-deserved reputation for forecasting what is not actually going to happen.

But there is one skill at which we excel – coming up with complex and utterly splendid explanations for why things did not pan out as promised. This is important; turn up to present to an audience for a second time and they’ll display a sneaky tendency to remember what you said before, often rather better than you do. So being nimble-footed is an essential part of the kit.

If an audience can hold you to account for something you said maybe a year before, how much more daunting it is to be appearing on people’s radar much more frequently. Thanks to quite extraordinary editorial generosity I’ve been popping up in this spot every four weeks since what seems like the beginning of time. And in a constant triumph of hope over experience I’ve chattered away about the future, setting out consolingly plausible forecasts for almost anything that moves, in an economic sense, that is. Inevitably I’ve got a lot of it wrong – or I would have done had I not sniffed the wind and adjusted the view.

And actually that is the whole point. Economics may be known as the dismal science, but so far as I am concerned it is more of an art – an art form that relies on a solid scientific base in order to function but which is ultimately an expression of judgment amidst extreme uncertainty. When the soon to be retired Bank of England governor Sir Mervyn King peppers his forecasts with caveats about uncertainty and the probabilities of error he is not being a wimp or hedging his bets. He is telling the truth.

There is no shame in admitting the improbability that any given forecast will be right (though against the odds it can happen) and I’d argue strongly that there is no shame in allowing one’s view to evolve as new evidence, or new thinking,
requires. But the process has to be honest and transparent.

Readers with awesome memories will know that by early 2011 I was cautiously suggesting that we had seen the worst and that the economy would start a slow, faltering but sustained recovery. This wasn’t a universal view but it did happen to be shared by the Bank of England and the Treasury – which I guess should have told me something.

In the interests of that all-important transparency I have returned to this central macroeconomic theme time and again; depressingly it has routinely been to recognise that for all sorts of reasons – often genuinely unpredictable – reality was lagging far behind expectations..

I pushed my luck by focusing on the economic outlook once again when writing this column at the turn of the year; at risk of sounding like the proverbial scratched record I ventured the view that 2013 would see the early stages of recovery that I had originally heralded for 2011. Given past performance, you could be forgiven for expecting that around about now I would be starting to back-pedal and readying the now familiar
explanations for why. But I’m not going to.

First quarter growth of 0.3 per cent was pretty dismal but justified cracking open the bubbly when set against all those forecasts of “triple dip” recession. Growth was largely driven by services but construction was – remember – drowning in incessant rain. Manufacturing disappointed and may still do so while the eurozone is such a mess.

But it all had more of a “business as usual” feel than we have had for a long time. Equity markets have been strong; generally this presages stronger real activity. Energy prices have fallen,
albeit not far enough. For the first time since the crisis began the Bank of England has raised its forecasts.

Putting out an optimistic piece last December felt pretty brave to me, so it is a great relief, for a change, to be able almost half a year later to be able to say I stand by it.

l Peter Bickley is a consultant economist