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2007: A look back

Tis the season for predictions again. Predictions of what the world holds in store for 2008.

For me in fact this is the time of year when I publish a list of useful observations and am forced to attach some forecasts to them. My observations are usually more important than my forecasts, which are worth approximately nothing - i.e. about the same as everyone else’s.

Tomorrow I'll publish my thoughts on how the year ahead is likely to pan out. But today we have to face the difficult bit - how did I do last year?

These are the forecasts I made, which I described as uninteresting. (The full article can be found here.)

• Base rates to end the year at 5.25%
• House prices to rise by 5 to 10%;
• Inflation to edge back down towards its target;
• The economy to grow by 2.5% or thereabouts;
• There would be a new chancellor by this time next year.

On base rates, house prices, inflation and the chancellor I was close enough. On the economy I underestimated the growth of the UK (it grew at about 3.1%).

But anyway, those forecasts, as I said, were uninteresting. The meat of last year’s article looking ahead to 2007 was that although the economy would probably chug along as normal, it might not. The argument was summarised in this paragraph:

“...the seismological analogy is a good one, because in many respects, you might think of the world economy as residing in a place like San Francisco. A place where the climate is benign, and the lifestyle comfortable, but a place located on top of a rather ominous fault-line, of global imbalance. 2007 will probably be quite normal in the world economy and in San Francisco for that matter. But if those fault-lines get disturbed in some way, it could turn out rather differently.”

The point was that 'business-as-usual forecasts' are mostly right, but rarely interesting. Just occasionally, the economy reaches a turning point and is genuinely interesting, but is then particularly hard to forecast accurately.

2007 is a year that we reached a turning point, although it didn’t turn enough to affect my core forecasts of inflation and house prices. So while I didn’t forecast the turning point, I did at least anticipate the possibility.

Come back tomorrow for my thoughts on 2008.

Comments   Post your comment

  • 1.
  • At 02:20 PM on 27 Dec 2007,
  • pip wrote:

Thanks for reminding us,the public, of your 2007 predictions. They were no more incisive, informative or accurate than the average private investor could have forseen, without access to the huge amount of financial information that you, and other'economists', have at your disposal. Please spare us your 2008 'predictions'.

  • 2.
  • At 02:28 PM on 27 Dec 2007,
  • Simon wrote:

"There would be a new chancellor by this time next year"

I think this was a pretty foregone conclusion!

  • 3.
  • At 03:16 PM on 27 Dec 2007,
  • Charles wrote:

So, if I've got this right, things will be good if they stay the same - which they might - and they will be bad if they change for the worse which there is every chance they might. My observations on these observations are really valuable: there may be a turning point in housing, employment and my job prospects but there might not be. I will return to my predictions next year to see how well I have done. Please feel free to hold me to them! I anticipate every possibility being right or wrong, right?

  • 4.
  • At 03:22 PM on 27 Dec 2007,
  • Mike wrote:

Not bad on the forecasting for 2007 there Evan. Given that 2008 will alomost certainly be more "interesting" than 2007 I look forward to tommorows predictions .

  • 5.
  • At 03:22 PM on 27 Dec 2007,
  • B Menzies wrote:

The forecast might not rank as "interesting", however the claim that you got it just about right is interesting because it's rather like a politician's claim.

What I do find "interesting" is the comment about the serious fault line and, as with San Francisco, just because the earthquake hasn't happened yet, it doesn't mean it won't happen!

  • 6.
  • At 03:47 PM on 27 Dec 2007,
  • Nic Hawkins wrote:

My forecast for next year - things stay pretty much the same but may not. If interest rates rise people who have borrowed money will have a bit of a cash crisis.

Is the cheque in the post? Easy money.

I'd be more impressed if the nature of the sub-prime faultline had been mentioned in some way a year ago.

My real predictions for 2008:
1. By the end of the year prominent institutional investors realise that boards have been negligent for too long and start litigating after yet another round of inappropriate and near-fraudulent remuneration and bonus pacjages are announced despite poor results.
2. The Chancellor resigns (or comes very close to it) after it becomes clear that the billions wasted on Northern Rock were used to placate shareholders rather than help savers, and the money will never be fully repaid.
3. The Tories finally realise what a huge amount of ammunition is out there relating to the ex-chancellor's decisions, and this in part brings about a change of government. Apart from the faces, very litle actually changes in government policy so stability is maintained.
4. House prices fall in Midlands and other low rent areas. They continue to rise in the SoutEast. This results in even greater income disparity between the affluent population centres and other areas.
5. Interest rates are cut again to ward off the global recession, ending the year at 4.75%. Inflation increases slightly as a result, but growth only slows to the low 2% range.
6. Despite record exam results yet again, Daily Mail readers realise that immigration really isn't such a big deal as Eastern Europeans start to return home as standards of living there improve. The resulting skill shortage starts to bite towards the end of the year with inflationary pressure on wages causing widespread industrial tension.

All based on zero science, and probably a bit premature on many points, but I think all plausible.

Have a nice day,

Nic

  • 7.
  • At 03:54 PM on 27 Dec 2007,
  • Sam wrote:

Predicting the possibility that "some imbalance" in the global economy could take place is hardly a prediction which merits a pat on the back. It's a bit like an astrologer who tells you things that are almost bound to be true of most people. E.g. You feel that you are ready for a change - opportunity will come your way soon and you should make the most of it.

Particularly when we haven't actually seen the effects of this on the consumer who still seems pretty bullish. With petrol prices so high and interest rates rising it is surprising that the consumer is still so ready to spend. An interesting dilemma for your 2008 predictions. Do you go for a continuation of the "business as usual" or do you go for a combination of problems starting to have a real impact on consumers and corporates? I'd be very surprised if 2008 isn't much more turbulent and on a knife-edge than 2007.

I'd be very interested on commentary on how the US (and allies) war on terrorism is affecting the global economy. I suspect most readers would be surprised at how much this can prop up a bleagured economy as it is a major source of global government spending - is this significant?

While we are forced to buy more expensive petrol and housing costs continue to rise, but the governments (UK) inflation targets ignore some of these factors - can we get a true picture of the economy? Are there good economic arguments for inflation targetting this way, or is it simply a measure designed to influence wage negotiations?

  • 8.
  • At 04:27 PM on 27 Dec 2007,
  • joseph wrote:

the worse forecast ever!!!!

  • 9.
  • At 05:23 PM on 27 Dec 2007,
  • Scamp wrote:

Growth of 3.1%? Humbug..

Given the state of the current account it's obvious the way in which we measure growth is fundamentally flawed. In my view we may have had technical growth but it was entirely the wrong sort of growth.

2008?

The people finally understand that the financial services industry is a rip off and begin revolting creating monthly runs on each bank in turn until they promise to behave themselves.

The City bans annual bonuses and instead makes the money available for investment in start-ups and early stage companies.

The Chancellor resigns having declared once again he doesn't believe in economic patriotism and the Sun takes him to court on charges of industrial treachery.

The Treasury moves out of London to the Shetland Islands in order to prevent City types having too much influence on policy.

The sale of Jaguar and LandRover to the Indians is banned and the major banks club together to save them for the country..

Of course none of this will happen but it should...

  • 10.
  • At 06:02 PM on 27 Dec 2007,
  • Michael Rae wrote:

I have to say that this article is pretty poor and it ranks alongside some of Evan's previous efforts, both in terms of banality and irritating vagueness. I recall a similar tranche of evanomics which concluded that more expensive wine is generally better than cheaper wine, but not always. What a fantastic waste of time.

The best thing about the article is comet-tail of amusing comments. Well done BBC website posters.

  • 11.
  • At 07:00 PM on 27 Dec 2007,
  • Paul Shires wrote:

Thanks for reminding us, the public, of your 2007 predictions. They were about as accurate as predicting that maybe it might rain next month or then again it might not but if it rained this month then it might rain again. Where was your prediction of the credit squeeze and the effective nationalisation of Northern Rock? Where was your prediction that the pound would be at it's strongest against the dollar for many years and at it's lowest against the euro ever?

  • 12.
  • At 09:26 PM on 27 Dec 2007,
  • David Phillips wrote:

Like Evan, I'm a professional economist and must take exception to the dismissive and arrogant responses to his blog. Economics is not an exact science, because of something economists call "stochasticity", which basically means there is an element of randomness and unpredictability to the underlying processes. Its not like physics or chemistry which is (mostly) deterministic.

However, an economist uses his knowledge of the processes that explain at least part of the outcome to make an educated guess. Most cases it will be a little bit out, other times it will be a little bit out, rarely it will be spot on. But the a bit of knowledge to condition your expectations on is better than none: just because sometimes Joe Bloggs gets it right and Evan gets it wrong doesn't mean Joe is better at Evan at economics; he just got lucky.

So turning to the predictions Evan made: his house prices, inflation and interest rates were all about right. This is in a context when you had a lot of people predicting doom and gloom of a crash and the general public thinking inflation is significantly above its actual level. With economic growth, the general public has thought "things next yr" will be worse than present for about the last 5 years, when this hasn't been the case (i.e. we've grown every year). I.e. Mr Evans did better than if u picked Joe Average. And in a discipline like economics thats all you can expect. Society is a complex beast and learning how it works is difficult but worthwhile; you'll never get all the answers but you'll be better placed than the clueloss lot who seem to frequent the BBC talking points.

  • 13.
  • At 09:49 PM on 27 Dec 2007,
  • Dan wrote:

I totally agree with comments so far.I am surprised how boldly you ask such a question of how right you were. I used to but now never follow your coloumns anymore. I suggest you try a hand at astrology.

  • 14.
  • At 03:19 PM on 28 Dec 2007,
  • Stuart wrote:

I predict that Evan will continue to make predictions for the forseeable future, although at the same time he may not.

  • 15.
  • At 03:27 PM on 28 Dec 2007,
  • Bob wrote:

"just because sometimes Joe Bloggs gets it right and Evan gets it wrong doesn't mean Joe is better at Evan at economics; he just got lucky."

Likewise, just because Evan gets it right and Joe gets it wrong doesn't mean Evan is better than Joe at economics; he just got lucky.

  • 16.
  • At 05:58 PM on 28 Dec 2007,
  • Robert Strudwick wrote:

Sorry Evan,stick to daily stuff and your analysis of daily problems, you are good at that leave predictions to Mistic Meg who unfortunatly has about the same 'hit' rate as you did. Keep doing Dragons Den, it is safer.

  • 17.
  • At 07:14 PM on 28 Dec 2007,
  • Michael Rae wrote:

In response to David Phillips' post, thanks for the explanation regarding stochastics. You may also know enough about it to realise that many physicists would take exception to you not realising its relevance to their field. Didn't Brownian Motion give rise to the study of random walks and their subsequent application to economics? No matter.

I particularly liked the following phrase from your post though, regarding predictions on the economy:

"Most cases it will be a little bit out, other times it will be a little bit out."

I think you've summed up Evan's article perfectly!

  • 18.
  • At 07:32 PM on 28 Dec 2007,
  • Kevin Gee wrote:

This is an interesting article.
I'm wondering what the exports are that the lowering of the pound will enable. Hasn't the majority of UK manufacturing base moved to the far east?
If so, do you mean export of services?

In a predominantly service based economy, doesn't a lowering of the currency increase price competitiveness but lower returns on investment?
If so, does this imply there will be further wage stagflation?
Thanks.

  • 19.
  • At 09:22 PM on 28 Dec 2007,
  • A Jones wrote:

Evan, Don't take to heart the criticism of the idiots posting here. I and many others like the light hearted way you try to inform on a potentially complex and dull subject (and I speak from experience as an economist and accountant). Please keep on explaining, and maybe the the critical bloggers should stop taking themselves too seriously and get themselves a life!

  • 20.
  • At 10:12 PM on 28 Dec 2007,
  • Anonymous wrote:

I think global warming will have more of an effect on the economy than can be predicted. Another year of flooding, who knows what that will do to the economy? Will houses in areas that have been flooded be virtually unsaleable and uninsurable? I think a new map of Britain will become apparent - those houses in good areas, i.e. not affected by flooding, will gain in value, and those with any taint of flooding in the past few years will fall off the scale of negative equity.

  • 21.
  • At 10:17 AM on 29 Dec 2007,
  • Ian Kemmish wrote:

Good grief, what cynicism!

Risk has of course been under-priced for years. Evan, like every other analyst, has been saying so for years. If you forecast a credit crunch five years in a row and it only happens in the fifth year, people think you're nothing more than a stopped clock. If, by the fifth year, you quite reasonably back-pedal a bit and point out that there's no accounting for irrational exuberance, people just laugh at you....

The analogy with San Francisco (where the next Big One is similarly overdue) seems pretty good to me. The longer it's delayed, the bigger it will be.

  • 22.
  • At 08:22 AM on 31 Dec 2007,
  • Graham wrote:

I am not as well informed as Pip's average private investor. I find Evan's articles interesting and useful - keep up the good work! I don't expect anyone to be able to tell me what will happen tomorrow.

  • 23.
  • At 12:40 PM on 31 Dec 2007,
  • Stuart wrote:

Why are blog commentators such huffers and puffers?

I love how you predicted there would a new chancellor. It was pretty obvious don't you think considering Mr. Brown was set to be the new PM?

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