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The Sheer Comedy Of Erroneous Economist GDP Forecasts In 13 Simple Charts

Tyler Durden's picture




 

If anyone needs a definitive confirmation that when it comes to predicting the future, "expert economists" are not only completely clueless but always approach the future with a baseline of endless and unquestioned bullishness, which in the past decade has ended up being humiliatingly wrong, we present the following charts from Deutsche's Jim Reid, showing the jawdropping cumulative error rate in GDP forecasts in the past decade among those countries that make the headline news every day.

What do the charts show: in the 9 years since the first forecast in October 2003, these 6 countries are 20.5% (Italy), 16.9% (Spain), 10.4% (France), 3.7% (Germany), 11.3% (UK), and 15.8% (US) behind on a cumulative basis what economists forecast back in 2003! This forecasting error has become more severe since the crisis begun. Since October 2007 (i.e. for the 5 years between 2008-2012) we are 16.4% behind cumulative forecasts in Italy, 18.1% in Spain, 10.6% in France, 7.0% in Germany, 14.7% in the UK and 10.6% in the US.

If there is any more damning piece of evidence that all those well-paid economists who are paid to see the future are thoruoughly clueless, than the above, we would love to see it.

How about looking at just the epicenter of the collapse of the Keynesian utopia: Greece? While we have shown this data previously in various iterations, this chart is just hilarious: it shows the actual GDP rate and the 1 year prior forecast.

Taking the same shorter-term approach as in the chart above and applying it to the original six countries, i.e., the future GDP forecast from Q4 2011 and comparing it to actual outcomes, shows something just as dramatic: virtually every country has seen massive misses to a forecast as recent as 1 year ago, except for the US, which at least for now is trending more or less as expected.

From Jim Reid:

With the exception of the US, the other five countries in our sample have seen significant to large misses relative to expectations over the last 12 months. The scale of the misses, especially as there were no abnormal shocks in the year only austerity, has to mean that there should be a fair degree of uncertainty as to the path of the European economy in 2013, especially in Spain and Italy. This cycle is not behaving very well relative to expectations and it’s a big call to predict the start of a sustainable turn around in 2013. If it does come then we'll likely see a significant sentiment boost. However if it doesn't materialise and growth is still negative as we move through Q2 and into H2, then it’s not inconceivable that we could see a resumption of solvency concerns in Europe, even if the ECB were buying bonds at the short-end.

 

The market might conclude that something more radical might be needed to be done to put certain countries’ finances back on a surer footing. A sell-off in longer maturity bonds might be the result of this pressure. At this point the ECB may again take centre stage and the pressure for full QE, across all maturities of bonds may build. Before this there is every chance of more market stress and risk-off as debt sustainability is doubted.

 

Maybe much depends on the understanding of austerity and fiscal multipliers and this will continue to be a big debate in 2013. On this it was interesting that the IMF have recently raised a flag that they may have under-estimated the size of the fiscal multiplier, especially in the post-GFC world.

Thank you DB for confirming that economists are about as insightful at forecasting the future (and reality) as a perfectly credible coin toss.

 

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Mon, 12/10/2012 - 11:26 | 3048536 LawsofPhysics
LawsofPhysics's picture

Since when has any part of eCONonomics been based in physical reality?  That which cannot be sustained won't be.  Nothing changes until the supply lines break and the trade and currency wars are just getting started, so it may be a while. same as it ever was.  However, these thing can escalate quickly so hedge accordingly.

Mon, 12/10/2012 - 11:30 | 3048554 vast-dom
vast-dom's picture

as i've been typing here for quite some time: FLIP A COIN | SHORT THE PONZI PLANET.

Mon, 12/10/2012 - 11:48 | 3048593 Boris Alatovkrap
Boris Alatovkrap's picture

"Flip a coin"

Now is understand why America is dollar coin - so everyone is can flip.

Mon, 12/10/2012 - 11:47 | 3048608 Boris Alatovkrap
Boris Alatovkrap's picture

Q: How many is economist for screwing incandescent bulb?

A: In theory, is only one, but economist is never experience screw incandescent bulb, so maybe is many. One or many, is require fiscal stimulus to get up.

Mon, 12/10/2012 - 11:26 | 3048537 ekm
ekm's picture

Those charst are not erroneous due to calculations.

The economists are simply wrong on purpose. The economist are quite simply paid to be wrong.

Mon, 12/10/2012 - 11:47 | 3048617 Boris Alatovkrap
Boris Alatovkrap's picture

No wonder is economist perpetually surprise!

Mon, 12/10/2012 - 11:27 | 3048543 BraveSirRobin
BraveSirRobin's picture

Most economist simply project trends. I do not see why you need a PhD to do that. You just take a chart starting at some random point and have excel draw trend line on it. Presto, you are an expert.

Mon, 12/10/2012 - 11:51 | 3048635 Boris Alatovkrap
Boris Alatovkrap's picture

Project trend is easy, but to proclaim projection, first must is pledge soul at alter of Federal Reserve.

Mon, 12/10/2012 - 11:28 | 3048545 Jason T
Jason T's picture

labor force participation crashing.. that is the biggest factor contributing to stallng economy.  .. and it ain't getting better.

Mon, 12/10/2012 - 11:28 | 3048549 km4
km4's picture

Saving Economics from the Economists

http://hbr.org/2012/12/saving-economics-from-the-economists/

Economics as currently presented in textbooks and taught in the classroom does not have much to do with business management, and still less with entrepreneurship. The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate.

Mon, 12/10/2012 - 11:30 | 3048556 Everybodys All ...
Everybodys All American's picture

You guys are using the wrong baseline. The economy looks great comparing it to a third world economy. Go long Kenyan dictators.

Mon, 12/10/2012 - 11:33 | 3048570 Pairadimes
Pairadimes's picture

Looks like we should be paying these people based on their performance...

Mon, 12/10/2012 - 11:38 | 3048573 The Master
The Master's picture

Absolutely.  Could have been worse, right?

 

/sarc

Mon, 12/10/2012 - 11:38 | 3048581 pods
pods's picture

Is GDP normalized for gov deficit spending/currency debasement? 

The slope would be even greater.  
We have been living in a debt built dream world for the past 40 years.

pods 

Mon, 12/10/2012 - 11:42 | 3048587 sasebo
sasebo's picture

When in doubt, whip it out ----  etc.

Mon, 12/10/2012 - 11:42 | 3048588 4exNinja
4exNinja's picture

If those economists flipped a coin, at least they'd have a 50% chance of getting it right...clearly that's not the case. So I'd say flipping a coin beats whatever garabage those economists come up with ;)

Mon, 12/10/2012 - 11:44 | 3048601 From Germany Wi...
From Germany With Love's picture

Hey, optimism pays - if you're one of those well-paid economists.

Mon, 12/10/2012 - 11:44 | 3048602 Iam Yue2
Iam Yue2's picture

Shambles.

Mon, 12/10/2012 - 12:08 | 3048610 Glass Seagull
Glass Seagull's picture

y = b1*Rick'sGDPforecast + b2*Joe'sGDPforecast + b3*Bill'sGDPforecast + rand(-pi, pi)/1000;

 

Mon, 12/10/2012 - 11:46 | 3048611 swissaustrian
swissaustrian's picture

Even more epic fail:

Median analyst gold price forecast 2007-2012

http://www.pmbug.com/forum/f2/%5Bchart%5D-financial-analyst-gold-price-f...

Mon, 12/10/2012 - 11:46 | 3048616 SmoothCoolSmoke
SmoothCoolSmoke's picture

Economists are cheerleaders for the Banksters...nothing more.

Mon, 12/10/2012 - 11:51 | 3048619 NoDebt
NoDebt's picture

You obviously misunderstand why they do forecasts.  It's so they can justify every manner of errant fiscal nonsense imaginable in DC (and elsewhere) and consider it "paid for" by expected future growth.  The rosier the forecast, the more they get to spend.  And who doesn't like spending more as opposed to less??

When reality fails to live up to the projection they just borrow the difference and wait for the economy to catch up and pay off the debt. 

When reality fails to meet THAT expectation, they just print the money.

I don't see the problem here.  Everything is going perfectly according to plan.  What?  Why are you looking at me like that?

Mon, 12/10/2012 - 12:04 | 3048675 NEOSERF
NEOSERF's picture

ZH - Confidence doesn't grow on trees...it takes time to continually throw out fallacious numbers (bordering on criminal if I was a big investor) and have the public believe them.

Mon, 12/10/2012 - 12:04 | 3048682 sasebo
sasebo's picture

If their Keynesian models were worth a shit, they'd be making mucho dinero in the stock market. Not working for some

delusional asshole politician or central banker who don't know nothing either. 

Mon, 12/10/2012 - 12:18 | 3048722 gaoptimize
gaoptimize's picture

A further problem with this optimism is that it affects almost every number that CBO and OMB calculate, leading to dramatic underestimates of the anticipated deficits.

Mon, 12/10/2012 - 14:59 | 3049222 laomei
laomei's picture

The problem with economists is their predictions and forecasts rely on everyone being as much of a psychopath as themselves.  Fortunately for the world, they are more or less, always completely wrong.

Tue, 12/11/2012 - 07:25 | 3051389 JohnF
JohnF's picture

Y'all are missing the point: this is the Consenus Forecast, which is a mid-point of many different forecasts. The individual forecasts out there each have their own story behind them that is to a greater or lesser extent plausible, but more often than not wrong. The Consensus lacks any story behind it and is therefore, per definition, always wrong. The real story here is that there are things going on with the economy that the forecasters here, largely, are missing entirely: that is worth investigating. That forecasts are off? Dog bites man...

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