Economics: Forecasting a global recession

by / Wednesday, 09 September 2015 / Published in Economy

IT IS rare for economists, particularly those at an investment bank, to forecast a recession. For a start, it is difficult to get it right; a recession is by definition a change in trend and economies tend to extrapolate past trends. But secondly, it is a career risk. One economist once told your blogger "I never forecast a recession. If I'm right, no-one will thank me; if I'm wrong, I'll be fired."Perhaps it is no surprise that the forthright Willem Buiter, once a member of the Bank of England's monetary policy committee, has been willing to go out on a limb; he has called gold a "6000-year old bubble". He says a global recession is the "most likely" outcome with a 55% probability. But it is worth noting that he defines a global recession, not as a period of falling output, but asa period during which the actual unemployment rate is above the natural employment rate or Nairu, or during which there is a negative output gap; the level of actual GDP is below the level of potential GDP. To avoid excessive attention to mini-recessions, this period of excess capacity should have a duration of a year or longer.Translating this definition of a moderate recession into GDP growth rates for the next few years, a moderate global recession starting in the second half of 2016 means global real GDP growth at market exchange rates declining from its likely current rate of 4% or slightly …
Source: The Economy