March 31, 2003

Note: State of the Business Cycle

The Economist now projects that the Euro area's economy will grow at 1.1% in 2003, that the Japanese economy will grow at 0.5% per year in 2003, and that the American economy will grow at 2.5% per year in 2003. I don't see why the America number is so high, given that the business-cycle news since January 1 has not been encouraging.

Posted by DeLong at March 31, 2003 03:09 PM | TrackBack


I can't read the article, since I don't have a subscription (shame on me), but I guess this was just what came out when they ran the numbers through. You, Brad, are doing what the models can't and exercising your judgement. I'm inclined to agree with you.

In fact I think, more than January or February, last week's news just about settled things. (Maybe it's unnecessarily callous of me to point this out, since the real suffering is in human life, but the longer war means more consumers out of the shops and sitting glued to the telly: good for six-pack sales I suppose, could they now be considered an inferior-good?).

With all the uncertainty downside risks must be high. Still the proportions with Japan and the eurozone seem about right. So if the US falls into the 1.0-1.5% range (or worse) then negative growth seems assured in Europe and Japan.

Posted by: Edward Hugh on March 31, 2003 09:46 PM

Is this too cynical? The Economist is very close in its estimate of growth for each region to estimates already published by the OECD, IMF and World Bank. If wrong, at least the Economist was wrong in good company. If right, well, so what if those other blighters got it right, as well?

Posted by: K Harris on April 1, 2003 05:23 AM

They're all using similar models.

And perhaps the war looms too large in our view from March. It seems highly unlikely that the war would last into the third quarter, by which time a recovery should be under way. That's two whole quarters of growth, starting from a rather modest January baseline.

Posted by: Ethan on April 1, 2003 08:25 AM

'by which time a recovery should be under way'

I'm afraid Ethan I've been hearing this for 18 months now, and I'm still not convinced. Of course, one day recovery will come, but it won't be like the late ninetees. The China factor is too big for one. Aging and US government debt for another.

Meantime the hill is still out there in front of us, and I think we're going to have to climb it. I think this, not because I'm cynical, far from it I hope, but because I'm not convinced the real problem is the war. Logically when that's out of the way there'll be one less excuse.

Focus points: falling consumer confidence, no sign of capital expenditure expansion, and faltering advance in the housing market. Add to these those 'twin deficits' and I think we're going to see a correction with or without the war.

Sorry, if you think I'm unfair on the economist K Harris, it wasn't my intention. I think the world would be seriously worse off if they didn't exist, even if I do think they do a bit too much fence sitting and fudging these days. My point was that good economists stand and fall on their judgements, whilst forecasts are only as good as the models they're based on. And, as Ethan says, they're mainly pretty similar, so it shouldn't be too shocking if the numbers look similar. Then the economists come out and talk about up-side and down-side risks. All-in-all the biggest critique is perhaps that they're all to heavily weighted on the side that the future is going to be like a re-run of the recent past. Problem: it ain't always so.

Oh well, reality check coming on line six months from now.

Posted by: Edward Hugh on April 2, 2003 07:03 AM
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