Economic forecasts are just guesses

economic_forecasting

Ever felt that financial forecasters are making it up as they go along?

What do you suppose is the most important statistical measure for those in charge of setting economic policy? GDP growth? The inflation rate? Unemployment? Guess again. The figure is the level of slack in the economy, also known as the “output gap”, or “spare capacity”. Presented as a percentage of GDP, it represents the gap between the level of output and the economy’s non-inflationary potential. When the figure is positive the economy can grow strongly without setting off an inflationary spiral. When the figure is negative, the economy is overheating and a damaging surge in prices is a danger. Earlier this month the Governor of the Bank of England, Mark Carney, said the level of slack in the economy was greater than previously believed. ….[READ]

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