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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 2016 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 4.6 4.8 7.5 (5.3) 4.7 German + French elections (8.0)
Japanese Yen 4.8 5.1 5.7 6.7 (4.4) 5.7 China Economic Health (6.0) 
UK Pound 6.8 4.5 5.9 7.7 (4.8) 5.7 Politics (7.0)
Swiss Franc* 3.4 3.6 4.7 5.2 (3.9) 4.1 Safe Haven Demand (7.0)

Asia Pacific
           
Australian $ 4.8 4.8 3.5 6.8 (4.3) 3.3

Raw Material Prices (8.0)

New Zealand $ 5.0 4.5 4.3 7.3 (4.7) 2.5 Dairy Prices (9.0)
Singapore Dollar 5.3 4.1 4.6 5.7 (3.9) 5.4 MAS Policy (9.0)
Taiwan Dollar
5.6 3.4 4.6 4.2 (3.5) 6.8 Cross Strait Relations (6.0)

Eastern Europe
           
Czech Koruna* 5.6 4.1 6.0 5.0 (3.2) 3.8 Currency Cap (10.0)
Polish Zloty* 5.0 4.6 5.3 6.0 (5.8) 4.9 Political Risk Perceptions (8.0)  
Russian Rouble 4.4 5.0 6.1 5.0 (4.3) 4.4 Crude Oil Prices (10.0)

Latin America
           
Argentinian Peso 5.3 8.1 7.0 6.3 (3.5) 4.2 Agricultural Prices (9.0), Govt. Intervention (9.0)
Chilean Peso 5.3 4.5 6.6 2.9 (2.7) 2.2 Copper Prices (7.0), Investor sentiment (7.0)
Mexican Peso 5.5 4.2 6.8 6.8 (5.9) 4.8 Oil Price and Oil Production (8.0)
Peruvian Sol 4.2 3.8 6.7 4.1 (5.0) 2.5 Commodity Prices (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.

Trends in growth and inflation are closely watched in a climate of high volatility and speculation. US monetary tightening in 2016 has thus far been elusive, due to a lack of momentum in the economy. However, recent solid monthly employment readings continue to fuel speculation about a possible rate hike before year-end. Some countries in Latin America have been forced to raise rates or retain a bias toward monetary tightening to combat inflation, namely Colombia. Related currency strength, through yield seeking capital inflows, has raised the risk of FX intervention. Among the major countries, bond yields (which are inversely related to price) have dropped to levels that suggest economic difficulties ahead. Weak fundamentals and low fixed income returns, though, have not deterred capital flows to Japan. The yen has surged more than 15% in the year to date and some observers expect it to head toward ¥95 per US dollar in the near term. In Switzerland, where short term rates are negative, the willingness of investors to pay a country to hold their funds may partly reflect expectations about currency strength. 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 on the previous page 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 2016.

TRENDS IN PRODUCTIVITY AND WAGES

In our August 2016 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 2028, 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 2014 2015 2016 2017 2018 2019-2023 2024-2028
Real GDP 2.4 2.6 1.5 2.3 2.3 2.2 2.1
Total Employment 1.6 1.7 1.7 1.4 1.1 1.0 1.0
Real Output (GDP) per Employee 0.7 0.9 -0.2 0.8 1.2 1.2 1.2
Employment Costs 2.1 2.1 2.3 2.8 2.9 2.9 3.0
Unit Wage Costs 1.4 1.3 2.5 2.0 1.7 1.7 1.8
Nominal GDP 4.2 3.7 2.9 4.3 4.5 4.3 4.2
Nominal Output per Employee 2.5 1.9 1.2 2.9 3.3 3.3 3.2

GERMANY
  - Annual Averages -
% change over previous year 2014 2015 2016 2017 2018 2019-2023 2024-2028
Real GDP 1.6 1.7 1.6 1.2 1.4 1.3 1.2
Total Employment 0.9 0.8 1.1 0.7 0.6 0.4 0.3
Real Output (GDP) per Employee 0.7 0.9 0.5 0.5 0.8 0.9 0.9
Wages and Salaries per Employee 2.7 2.8 2.6 2.5 2.6 2.5 2.5
Unit Wage Costs 2.0 1.9 2.1 2.0 1.8 1.6 1.6
Nominal GDP 3.4 3.8 3.2 2.8 3.1 2.8 2.7
Nominal Output per Employee 2.5 3.0 2.1 2.1 2.4 2.4 2.4

The productivity conundrum plaguing the G-7 and Western Europe is evident in this month’s Productivity and Wages survey. Despite lacklustre activity in many countries, as well as concerns over long-term job creation, productivity growth [measured here as Real Output (GDP) per Employee] has softened noticeably in recent years. A worrying lack of capital investment is clouding the outlook going forward and, despite some employment gains, wage growth remains modest. With investment in IT down from its 1990s peak, the ‘virtuous cycle’ of productivity has slowed. This year is expected to be especially weak. The US and Japan should see negative productivity of -0.2% and -0.3%, respectively. In the US, a weak Q2 GDP report has set a downbeat tone for the year. Moreover, the Bureau of Labor Statistics’ most recent measure of non-farm labour productivity, Output per Hour, showed three consecutive quarters of decline. Q2 non-farm output per hour fell by -0.5% (q-o-q annualized), compared with -0.6% in Q1. Unit labor costs were high, at 2%, while our measure of unit wage costs is expected to double by 2.5% this year. Unlike GDP, the job market has been firm. However, sustained productivity weakness has meant that US workers are seeing depressed pay fundamentals. This, coupled with muted GDP growth, means that jobs going forward are in no way guaranteed. Increased automation is also a source of anxiety for workers in the OECD countries, especially as unit wage gains outstrip growth. For Japan, too, unit wage growth is outpacing both GDP and productivity. This country has long experienced productivity problems with its stagnant growth, low female participation rate and deflationary environment. Meanwhile, the Euro area’s productivity growth has been due to massive job cuts over the past 6-8 years rather than “strong value-added growth.” This, of course, is creating structural unemployment problems.

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

FORECAST PROBABILITIES

In our January 2017 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 2017, 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 2018. 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. 2018
  Appreciation vs. US$
between survey date and end-Jan. 2018
-22% or
more
-22% to
-14%
-13% to
-5%
+/-4% +5% to
13%
+14% to
+22%
+22% or
more
Euro 1 7 22 43 19 5 2
Japanese Yen 4 8 18 45 18 7 1
UK Pound 2 5 24 47 18 4 1
Canadian dollar 1 3 16 52 20 6 2

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 2018 falling in seven comparable % ranges. Interestingly, many panellists ascribe a higher probability to GDP growth and inflation surpassing their central forecasts, namely for those covering Japan, the UK, Italy, the Euro zone, Norway and Spain. Indeed, going into 2017, there seems to be new-found optimism over the outlook which was missing this time last year when oil prices were near recent lows, deflationary pressures became more entrenched and Chinese financial jitters raised fears of another global crisis.

UNITED STATES

GDP Growth, %
2017 consensus = +2.3%

% probability

< +1.2

4
+1.2 to
+1.6

9
+1.7 to
+2.1

24
+2.2 to
+2.6

40
+2.7 to
+3.1

18
+3.2 to
+3.6

4
> +3.6


1
Consumer Price Inflation
2017 consensus = +2.4%

% probability
< +1.4

2

+1.4 to
+1.7

10

+1.8 to
+2.1

27
+2.2 to
+2.5

44
+2.6 to
+2.9

13
+3.0 to
+3.3

4
> +3.3


1

US GDP Growth chart imageRecent 2017 GDP forecasts for the G-5 countries are indicating signs of slight improvement. In the UK, this recovery follows a setback to the outlook in the wake of Brexit. Even now, the GDP consensus remains well below expectations prior to the vote. Germany and France also suffered from some loss of sentiment in the immediate aftermath, but have since stabilised. The US outlook for GDP has strayed little from earlier forecasts. The surprise presidential victory for Republican Donald Trump triggered little unrest on the financial markets and, in fact, the stock market and US dollar have made broad gains. With the economy supported by strong jobs and earnings data, the Federal Reserve raised interest rates in December for the first time in a year. President-elect Trump’s planned spending splurge may speed up the rate of policy normalisation in the US going forward and provide more support for the dollar. In Japan, the failure to raise growth and inflation has led the government to delay a planned consumption tax hike for this year until 2019, and this may account for some of the uptick in GDP growth prospects. Despite extremely accommodative monetary policy, the Bank of Japan has been unable to kick-start inflation. The ECB has also encountered a prolonged period of deflationary pressures in the Euro area, although a sudden surge in December 2016 has buoyed expectations. A rebound in oil prices has contributed to this, while firms are facing an increase in factor costs. This has also been evident in the UK economy, following a heavy slide in sterling.

For further information, including economic data on other countries, see the complete study in Consensus Forecasts, January 2017.