BofA Revises Long-Term GDP Forecast, Sees No US Recession During Next Decade

Tyler Durden's picture

Who cares about their atrocious Q1 GDP forecast (because of "snow" of course), or how much El Nino, La Nina, or any other climatic conditions will impact their Q2, Q3, Q4 and so on economic prediction?

Bank of America that's who.

In what should be the biggest joke of the day, Bank of America has just released its GDP forecast not for the next several quarter, but making a mockery of the IMF's 2022 Greek GDP forecast, it predicts US growth for the next decade!

The punchline: after expecting a surge in growth to 3.4% in 2016, the bailed out bank tapers off its forecast which evens off at 2.2%... some time in 2025. And throughout this period its crack economist team headed by Ethan Harris anticipates precisely.... zero recessions.

Indeed, in what will be a first time in history, the US is expected to grow for 16 consecutive years since its last official, NBER-defined recession (which "ended" in the summer of 2009) without entering a recession.

Here is how Harris explains this joke:

Obviously, there is considerable uncertainty in forecasting many years out, so these should be viewed as rough baseline numbers. For example,if history is our guide, at some point in the next decade the US will experience a recession, but predicting a recession far in advance is almost impossible.

Well, why not. Considering Biotech ETFs just arbitrarily exclude any negative and low earnings companies from their basket P/E calculation, it only makes sense that when predicting US growth one simply excludes all the recessions.

More humor from Bank of America:

Long-run forecasting is very different than short-run forecasting. Some of the key assumptions we use are as follows:


1. We expect real GDP growth to converge to potential growth after 2016, which we expect to be around 2.2%.

2. We expect that the long-run unemployment rate (the NAIRU) resides around 6%, due in part to demographic factors.

3. We expect the Fed to on average hit its 2% target for the PCE deflator, and the other inflation numbers are modeled off that assumption.

4. We expect interest rates to converge to slightly lower long-run levels due to ongoing fiscal headwinds and lower potential growth

Or, said otherwise, "we took a long-term GDP chart and extrapolated." Hence: value added.