Balneus

Australian Lefty on Politics, Governance, Science and Info Management

Thumbs up for RBA, a little for Rudd and Swan

Posted by Dave Bath on 2008-02-10


Two things struck me in my brunch browsing of The Economist data:

  1. The spread of forecasts for GDP increases is large – implying greater uncertainty.
  2. GDP and CPI predictions have been more optimistic in the last month, perhaps giving Rudd and Swan a small pat on the back.

The increased spread between high and low GDP predictions for various nations indicates a volatile economy.  Consider the ratios between high and lows for 2008 GDP growth in a February poll:

Australia:3.0/4.5, Canada:0.5/2.5, US:0.6/2.2, EuroArea:1.3/2.4

These aren’t mere pundits: these are mainly banks who will therefore be offering wildly different advice to governments and customers.  Here’s the list: ABN AMRO, BNP Paribas, Citigroup, Decision Economics, Deutsche Bank, Economist Intelligence Unit, Goldman Sachs, HSBC Securities, KBC Bank, JPMorgan Chase, Morgan Stanley, Scotiabank, UBS.

If the underlying assumptions vary so much, what is the chance that decisions based on those assumption will do anything good?

Nevertheless, Rudd/Swan have not spooked the economists, and there has been marginal improvement in their expections in the last month, especially on inflation which everybody is worried about now, based on the CPI increases (annualized rates):

  • December: 4.1%
  • 2008 Expectation (as of Feb): 3.1%
  • 2008 Expectation (as of Jan): 3.2%
  • 2009 expectation: 2.7%

It’s also worth noting that the US government stimulus package and the actions of the US Federal Reserve lowering rates has meant that while those countries that are cooling the economy (increasing interest rates) are causing lower inflation expectations, inflation expectations for the US are going up.

However, Swan berating the banks for jacking up interest rates is disingenious, as he knows that consumption needs to drop, and that the cost of money is going up in the real world regardless of official rates.  Populism from treasurers is always a bad sign.

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