Economic forecasts: 'The more, the better'
That the economy shrinks as a result of the corona crisis is for sure, but there are different predictions and scenarios about how serious the damage will be. Predictions show a decrease of 6 to 8% for 2020, but forecasts are never 100% reliable. Philip Hans Franses, Professor of Applied Econometrics at Erasmus School of Economics, gives his view on the different predictions and explains how we should interpret them.
The Dutch government relies on the predictions of the Dutch Bureau of Economic Policy Analysis (CPB). They make short-, medium- and long-term forecasts based on what is happening in the world and to our economy today. Besides the CPB, the Dutch Central Bank (DNB) also provides estimates of the expected economic growth every six months. And they are not alone in this; other banks are also involved in making forecasts. The forecasts of banks are often based on indicators other than those of the forecasting bureaus, which banks to make forecasts faster. One of the indicators banks use are the open and closed barriers in the port of Rotterdam that provide insights into international trade. A very important indicator, according to Philip Hans Franses. Finally, international forecasts are made by the Organisation for Economic Cooperation and Development (OECD) and the European Central Bank, among others.
The more the better
The number of forecasts out there is enormous and many of them show different predictions and scenarios. According to Philip Hans Franses, this is not a problem at all. 'The more the better. If you take the average of all forecasts, you have the best estimate of what will happen to the economy. But for the Dutch government, analyses and predictions of the CPB are the most important.' Whether these predictions are relevant for you depends on your personal situation, says Franses. Many people will not directly notice any changes in their financial situation.