Thursday, 31 December 2015

Forecasting the Future.

Paul Sweeney makes some forecasts for 2016.
No one had forecast that Ireland’s growth rate would hit 7 percent in 2015. No one. So making predictions for 2016 is a mug’s game but like most economists, mine are projections based on previous trends. They do not predict shocks. 

Ireland’s growth rate of 7 per cent in GDP in the last quarter of 2015 was probably one of the highest in the world. It will probably average at over 6 per cent for the year. Of the 40 or so countries I checked, India in 2015 had the highest growth rate at 7.3, China at 6.9 percent, Malaysia at 5.4, the Philippines at 6.4 and  Russia at minus 3.8%. Indeed Russia will continue see its economic growth fall by around 4 percent again in 2016, thanks mainly to the continuing weakness of oil prices on which Putin’s ill-governed land is still too dependent. Ireland’s GNP growth was a substantial 5.6 percent in quarter 3 of 2015. 
The weak euro, weak oil prices and low interest and inflation will continue to help Ireland and growth will be around a very respectable 4.8 per cent GDP and a bit lower on the more relevant GNP and will probably over 4 per cent in 2016. This will help reduce unemployment.
The European economy has been poorly governed for some years now and its growth will continue to to be sluggish at only 1.5 per cent again. The UK and US economies will be stronger though the Brexit debate may interrupt its progress. Britain will stay in Europe because the British people are wiser than their minority of populists and ex-imperialists. In 2015, UK and US growth were both 2.4 percent and both are likely to be close to this rate in 2016, which is good for Irish exporters.  
Unemployment in US fell in 2015 but labour force participation there is at it lowest levels for more than three decades at close to 62 percent. Hillary Clinton will be elected President and that will improve things. However, she is hardly likely to try to fix the shattered American Dream - which died in 1971 (that dream being that each generation will have a better living standard than their parents). Wages have hardly risen in real terms since then. Because the level of US inequality is now hindering economic growth, it may begin to be addressed, especially if the Democrats take control of the Senate, which may occur.
Unemployment in Euro area is very high at 10.8 per cent. 
Inflation is at 0 in Europe. However, if the substantial fall in oil prices in 2015 were excluded, inflation would be 1.5 percent in 2015. This is probably why the ECB is still obsessed with inflation and the stimulus of printing banknotes is insufficient to generate growth. 
But monetary policy alone is insufficient and EU fiscal policy is too restrained and the investment plan – the Juncker Plan is pathetic. Until there is regime change in Europe, and voters are still voting conservative, economic policy will mean that the 25,000,000 unemployed will have little hope. And too many of the new jobs that are being created are precarious, poorly paid and too many are for so-called “entrepreneurs”. The European Social Model – the best big area in the world in which to work and live – is still under siege.
Irish’s economic progress will continue in 2016, helped by the election. Even Austerians are promising spending, though some of the leaked promises of lower taxes AND increased spending - ill-conceived populism - will hurt us all in the longer term. The best promise is small, equitable tax increases because the economy is growing so strongly and because many (eg corporates, evaders, untaxed avoiders) can afford to pay more taxes. This should be accompanied by some increased spending on public services plus a publicly funded investment programme well in excess of the government plan as suggested in “A Time for Ambition” by TASC.
And the out-turn for the election here? 
Who knows? We hope people will not be taken in by rising populism on the left and now centre right and will vote for those parties which try to seriously address inequality.

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