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Polls on Topical Issues

In addition to regular monthly surveys of economic forecasts, Consensus Economics also undertakes special surveys for long-term forecasts, quarter-by-quarter forecasts and many other economic-related topics. We set out below examples of three of our recently conducted special surveys.

1) Factors Affecting Exchange Rates

2) Trends in Productivity and Wages

3) Forecast Probabilities

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FACTORS AFFECTING EXCHANGE RATES

In our August 2015 special survey of factors affecting exchange rates, we asked our panellists to rank the current importance of a range of different factors in determining exchange rate movements (against the US dollar, unless otherwise noted). Scores were assigned to each of the factors shown in the table below on a scale of 0 (no influence) to 10 (very strong influence). The consensus results are the averages of individual panellists' scores for each factor. Given that different currencies are influenced by a wide range of factors, we have limited the variables considered to a common list of six factors which we asked our panels to assess for every currency. In addition, we asked panellists to suggest, and rank, other factors which they felt to be of particular importance. The most frequently cited (if any) of these for each currency appears in the right-hand column.

CONSENSUS RANKING OF EXCHANGE RATE DETERMINANTS
Exchange Rates per US$, unless Otherwise Stated Relative Growth Inflation Differential Trade/
Current Account
Interest Rate Differentials
Short (Long)
Equity
Flows
Other Factors (Score)
G-7 & Western Europe
           
Euro 6.0 6.3 3.0 8.4 (6.6) 5.5 Investor sentiment (8.0)
Japanese Yen 5.3 6.3 4.7 8.4 (6.4) 5.5 Risk Appetite (8.5) 
UK Pound 6.2 4.8 5.0 8.4 (6.4) 4.7  
Swiss Franc* 5.0 6.5 4.3 6.4 (5.7) 2.3 Risk of Intervention (8.0)

Asia Pacific
           
Australian $ 6.2 5.2 6.3 8.2 (8.0) 4.0

Coal and Iron Ore Prices (8.0), Terms of Trade (8.0)

New Zealand $ 6.2 5.2 6.3 8.2 (8.0) 4.0 Dairy Prices (8.0)
Singapore Dollar 8.0 6.0 7.0 10.0 (9.0) 5.0  
Taiwan Dollar
8.0 6.0 7.0 10.0 (9.0) 5.0  

Eastern Europe
           
Czech Koruna* 5.0 6.0 6.0 4.0 (4.5) 5.0  
Polish Zloty* 4.7 4.7 6.0 5.7 (5.7) 6.7 Euro zone QE Influence (8.0)  
Russian Rouble 4.7 4.7 6.0 5.3 (5.3) 5.7  

Latin America
           
Argentinian Peso 7.0 8.0 9.0 5.0 (2.0) 1.0  
Chilean Peso 7.0 5.0 7.0 3.0 (5.0) 3.0 Copper Prices (8.0), Investor sentiment (7.0)
Mexican Peso 7.0 6.0 8.0 8.0 (5.0) 4.0 Oil and Oil Production (8.0)
Peruvian Sol 6.5 6.0 7.0 7.0 (5.0) 3.0 FX Intervention (8.0)

* Analysis refers to determinants of the exchange rate against the euro.

Exchange rates are clearly influenced by a wide range of different factors, and the importance of each varies both from country to country and, for any given currency, over time. The special survey (sample above) is an attempt to compare and rank the differing degrees of sensitivity with which different currencies respond to these various influences. In addition, as these influences are frequently pushing in different directions, it should also help to determine which factors are likely to dominate.

While we asked our panellists to assign scores to six main factors as independent variables, it is clear that they are interlinked to a large degree. Trends in growth and inflation are being closely watched in Europe, as a prolonged decline in the latter have raised the risk of deflation. Clearly, negative price increases over a long period would be harmful for demand and production, not least because the recovery in the euro zone is fragile and uneven. European political risks do not appear to have had a significant effect on real indicators for the economy, while increases in the money supply should lift inflation expectations. Yet, as has been highlighted by the taper tantrums in the US, the eventual withdrawal of policy accommodation in Europe might trigger bouts of financial instability. In Asia, the Chinese renminbi (not featured in this special survey) depreciated sharply on August 11, in response to sustained US dollar strength and an impending US rate hike, as well as softer domestic fundamentals. Whether or not Beijing will tolerate further significant FX volatility remains unclear, but the latest policy adjustment has shifted expectations as to how the US$/Rmb exchange rate will be determined going forward, which has implications for other major currencies in Asia. In addition to the factors ranked at our request by panellists, we also asked for suggestions of others. The far right column in the table above shows only the most often cited or highly-ranked, with the exception of a few currencies for which two main factors were both frequently cited.

Source: Foreign Exchange Consensus Forecasts, August 2015.

TRENDS IN PRODUCTIVITY AND WAGES

In our August 2014 special survey of trends in productivity and wages, we asked for our panellists' projections for total employment growth and wage or employment costs between now and 2027, along with real and nominal GDP growth forecasts over the same period. Using indices derived from these projections, we have calculated forecasts for broad measures of productivity growth (real and nominal GDP per employee) and an indicator of unit wage costs (calculated by dividing the employment cost indices by the indices of real GDP per employee). Although some of the wage definitions used are imperfect measures for total compensation per employee, our calculated indices do provide a general indication of future trends in unit wage costs.

UNITED STATES
  - Annual Averages -
% change over previous year 2013 2014 2015 2016 2017 2018-2022 2023-2027
Real GDP 1.5 2.4 2.3 2.7 2.6 2.3 2.3
Total Employment 1.0 1.6 1.5 1.8 1.8 1.5 1.1
Real Output (GDP) per Employee 0.5 0.8 0.7 0.9 0.8 0.9 1.3
Employment Costs 1.9 2.1 2.3 2.6 3.2 3.3 3.3
Unit Wage Costs 1.4 1.3 1.5 1.7 2.4 2.4 2.0
Nominal GDP 3.1 4.1 3.4 4.6 4.7 4.5 4.3
Nominal Output per Employee 2.1 2.4 1.9 2.8 2.8 3.0 3.2

GERMANY
  - Annual Averages -
% change over previous year 2013 2014 2015 2016 2017 2018-2022 2023-2027
Real GDP 0.1 1.6 1.9 2.0 1.8 1.4 1.3
Total Employment 0.6 0.8 0.5 0.5 0.6 0.2 0.0
Real Output (GDP) per Employee -0.5 0.8 1.3 1.5 1.2 1.2 1.3
Wages and Salaries per Employee 2.2 2.7 2.9 2.7 2.8 2.3 2.3
Unit Wage Costs 2.7 1.9 1.5 1.2 1.5 1.1 1.0
Nominal GDP 2.2 3.4 3.5 3.3 3.3 2.8 2.6
Nominal Output per Employee 1.6 2.5 3.0 2.8 2.7 2.6 2.5

Strong productivity gains (measured as Real Output per Employee) in 2010 came on the back of the 2008-9 financial crisis. This crisis had prompted major retrenchment in GDP and soaring unemployment in the G-7 and Western Europe. In the United States, for example, jobs were shed rapidly and the drop in employment outpaced the initial contraction in GDP. This contrasted with Germany where the preservation of “brain capital” in the car sector (albeit at reduced salaries and hours) was prioritized over swingeing job cuts. Despite strong rebounds in 2010 productivity, however, this robust pace was impossible to sustain and output per worker has since ebbed dramatically in all of our surveyed countries. In the US, employment growth has recovered gradually over the past 5 years but the jobs recovery is fragile, judging by the Fed’s intense focus on job fundamentals. Moreover, stubborn long-term unemployment has been a growing feature of a maturing job market, and wage inflation has been meek. With investment in IT down from its 1990s peak, the ‘virtuous cycle’ of productivity has slowed. In Q2 2015, the Bureau of Labor Statistics measure of nonfarm business sector labour productivity, Output per Hour, grew by only 0.3% (y-o-y) following a 1.3% decline in Q1. Potential GDP growth is down from optimum 3% highs and, consequently, our panel’s expectations for US output per employee average 0.9% over the next 12 years. German, UK, Canadian, Dutch, Norwegian and Swedish productivity are expected to expand at somewhat faster rates. Following mass layoffs, Spain saw notable gains on the productivity front but these should moderate going forward. Persistent youth joblessness, though, as well as increasing moves towards the automation of jobs, does present acute societal challenges for the G-7.

For further information, including economic data on other countries, see the complete study in Consensus Forecasts, August 2015.

FORECAST PROBABILITIES

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 and consumer prices 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 2016. 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 ... (continued in our January 2016 publication).

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

US 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.