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ECONOMIC FORECAST PROBABILITIES

In addition to their regular forecasts for the major economic indicators, each January we survey our panelists for their predictions of how the various economies are most likely to perform over a given time horizon. We undertake special surveys of economic forecast probabilities across our publications Consensus Forecasts, Asia Pacific Consensus Forecasts and Eastern Europe Consensus Forecasts.

This special survey aims to assess the risk of these other 'non-consensus' outcomes, which range wider than a simple examination of the highest and lowest central forecasts would suggest. In order to do this we asked our panelists to assess the probability that the variables covered would fall within the ranges displayed in the partial sample tables below, which allowed us to compile some rough probability distributions to identify those areas of greatest uncertainty in the economic outlook. The ranges themselves differ from country to country and from variable to variable, but were set so that the central range (the middle column in the tables and charts) encompassed the consensus forecast from last month's survey. The width of all of the ranges was chosen to reflect the standard deviation of central forecasts for each variable. The ranges are wider for those variables for which the economic outlook is most uncertain.


Consensus Forecasts Asia Pacific Consensus Forecasts Eastern Europe Consensus Forecasts
United States Australia Czech Republic
Japan China Hungary
Germany Hong Kong Poland
France India Russia
United Kingdom Indonesia Turkey
Italy Japan Bulgaria
Canada Malaysia Croatia
Euro zone New Zealand Estonia
Netherlands Philippines Latvia
Norway Singapore Lithuania
Spain South Korea Romania
Sweden Taiwan Slovakia
Switzerland Thailand Slovenia
    Ukraine


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In our January 2016 special survey of forecast probabilities, in addition to their central (most likely) forecasts in the consensus economic survey, we asked our panellists to assess the probabilities of a range of alternative outcomes for each of the listed variables, i.e. GDP forecasts, consumer prices and the current account in 2016, as well as for exchange rate forecasts (for the euro, the Japanese yen, the UK pound and the Canadian dollar) against the US dollar by the end of January 2017. This analysis is an attempt to quantify the risk that these economic indicators might turn out to be significantly higher or lower than individual forecasts currently suggest, and allows us to compile consensus probability distributions to identify those areas of greatest uncertainty in the economic outlook for the G-7 industrialized countries.


FOREIGN EXCHANGE RATES

Average probability of the following exchange rates falling within the ranges shown Depreciation vs. US$
between survey date and end-Jan. 2017
  Appreciation vs. US$
between survey date and end-Jan. 2017
-23% or
more
-22% to
-14%
-13% to
-5%
+/-4% +5% to
13%
+14% to
+22%
+23% or
more
Euro 1 6 26 45 17 4 1
Japanese Yen 1 5 24 48 17 4 1
UK Pound 0 3 16 44 29 7 1
Canadian dollar 1 4 17 48 22 6 1

euro us dollar exchange chart imageConsensus forecasts are mean averages of individual panellists' predictions of the performance of various indicators over a given time. However, most forecasters would also attach some probability to various – perhaps radically different – outcomes or scenarios. These probabilities provide a wider assessment of the risk attached to the consensus and are based on estimates of unexpected or extreme movements in key variables, such as exchange rates or commodity prices. These and other factors could alter a central forecast. Every year in January, we ask our panellists to supplement their central forecasts for GDP growth and inflation for the year ahead with a set of probabilities of the outcomes falling within specified ranges shown in the tables. The ranges differ from country to country and from variable to variable, but were chosen so that the central range (the middle column in the tables and charts) generally encompassed the consensus forecast from last month's survey.

We also show the probability distributions for oil prices as well as for the major forex cross rates of the G-7 currencies. Here, we ask for the probability of the percentage change in the exchange rate between now and January 2017 falling in seven comparable % ranges. Our panel anticipate a 33% chance of the euro falling by more than 4% against the US dollar by January 2017. The recent US interest rate rise should encourage capital into the US economy, while strength in the jobs market and business investment could help it become the fastest growing G-7 country in 2016. However, export-oriented companies are seeing profit margins squeezed by the strong dollar. By contrast, the euro faces downward pressure from the ongoing stimulus efforts of the European Central Bank whose bond-buying programme could be prolonged past March 2017 if inflation fails to rise.

FRANCE

GDP Growth, %
2016 consensus = +1.4%

% Probability

< +0.5

1
+0.5 to
+0.8

7
+0.9 to
+1.2

21
+1.3 to
+1.6

47
+1.7 to
+2.0

21
+2.1 to
+2.4

3
> +2.4


0
Consumer Price Inflation
2016 consensus = +0.8%

% probability
< -0.3

2

-0.3 to
+0.2

12

+0.3 to
+0.7

42
+0.8 to
+1.2

36
+1.3 to
+1.7

7
+1.8 to
+2.2

1
> +2.2


0

France GDP Growth chart imageRecent 2016 GDP forecasts for the G-5 countries are on the decline. The US Federal Reserve finally went ahead in December 2015 and raised interest rates for the first time in 9 years. However, along with GDP growth concerns in the emerging markets and by recent turmoil in the Chinese stock market, the greenback has risen, impacting US trade competitiveness and pinning down inflation prospects. Slumping oil prices have negatively impacted on the industry, despite giving a fillip to consumer spending. German GDP forecasts have edged down, but record-low unemployment and solid wage growth have stimulated domestic demand, helping to balance out growth in the usually export-orientated economy. While GDP growth picked up in France in Q3, the Paris terrorist attacks may have helped to dim expectations somewhat. Commentators are concerned that individuals may avoid public places, suggesting a downturn in the tourist industry. The UK recovery has been heavily dependent on consumer spending, helped by falling unemployment and ultra-low inflation. Consumer price inflation is projected to have hit 0.0% in 2015 according to our latest poll, boosting individuals’ disposable income. 2016 price expectations have declined, too, slipping well below the Bank of England's 2% target. Japanese inflation has also moderated further as the economy struggles to boost activity after narrowly avoiding recession in Q3 2015. Inflation in much of Western Europe and the US continues to face downward pressure from tumbling oil prices. Brent and WTI spot rates slid to US$30 per barrel on our survey date.

For further information, including economic data on other countries, see the complete study in Consensus Forecasts, January 2016.