Wall Streeters give a lot of credence to economic forecasts at the start of every year, as corporations project demand and craft their budgets and money managers plan out their strategies for the next year. One key factor that goes into that planning is where the gross domestic product (GDP) is headed, but whether or not those predictions are accurate is a big question asked by an article in Barron’s.
Using yearly Bloomberg surveys from 2000-2021, Barron’s found that the median forecast among the economists, money managers, independent research firms, and other organizations surveyed was 0.99% off in either direction from the actual year-over-year GDP. Some years saw a bigger discrepancy; in 2019, the median prediction was 1.8% for 2020 while the real number was -2.8%. While the pandemic obviously caused a massive impact, the following year was just as wrong, when economists were off by 1.9 percentage points. And a deep dive into the predictions in December 2007 found not one respondent accurately predicted the downturn that was to follow, with their forecasts ranging from 0.7% to 3.4%, when the actual GDP change was -2.6%, the article details.
Though it’s impossible to predict the future, Barron’s found the real problem was a distinct “optimistic bias,” with economists’ projections exceeding the actual GDP change in almost all but a handful of the years studied. So while portfolio managers and other planners should factor economic forecasts into their strategies, it would be wise of them to not give them too much weight or wager too much on their accuracy, the article contends. Meanwhile, the current outlook for 2023 is a 0.5% GDP increase, according to a January Bloomberg survey. That could be accurate—or it could be wildly wrong.