Taking stock of past economic predictions and making new ones for 2016
Louis-Philippe Rochon checks his track record for 2015 and offers his thoughts on the new year
Last Jan. 6 on this site, I presented my Top 10 predictions for 2015. A year later, let's see how accurate they were.
Where I was right on the money:
- Prediction: Weaker growth. "Most economists are predicting stronger growth in Canada in 2015, largely based on the U.S. recovery. But I just don't see that happening." In fact, in March, I predicted the economy was in recession. One recession later, and despite a respectable growth spurt in July, the economy is again flirting with negative growth. In September, I wrote the recession would extend beyond the first half of the year.
- Prediction: "There will be a sizable decline in oil-industry investment and new exploration, which will reverberate through the country." We are still seeing the ravages of the collapse of the oil industry and our overreliance on it.
- Prediction: Continued weakening of the Canadian dollar. The writing was on the wall really.
- Prediction: "The continued slide of the price of oil will threaten Ottawa's fiscal position and push the federal books into deficit." This is precisely what happened, despite claims to the contrary.
- Prediction: "Rise of interest rates in the U.S., but not in Canada. This is another prediction that goes against the mainstream." In fact, rates in Canada have declined while they have just increased in the U.S.
- Prediction: "Consumers will continue to increase their already-very-high debt loads in 2015." This is increasingly becoming a dark horse we need to watch. It can potentially unleash damage on our fragile economy.
- Prediction: "I expect the federal government to tighten mortgage and lending rules in 2015. First-time homebuyers may find it more difficult to qualify for a mortgage." The government announced in December that homebuyers will need a higher down payment on the portion of homes above $500,000.
- Prediction: "Weak growth and a possible Euro-recession is a real possibility." Europe is a mess, and it will get worse.
Where I was less successful:
9. Prediction: "It will be difficult for the U.S. economy to continue the strong growth it displayed in the second and third quarters of 2014." This proved to be correct, although the U.S. economy is showing some unexpected resilience.
Where I was wrong:
"Canada will slip further in world ranking." We ranked 11th in 2013, and climbed to ninth in 2014. Mea culpa.
Some pundits have told me I "got lucky" with my predictions. Luck had nothing to do with it, but my record had everything to do with an understanding of how the economy actually works. Pundits are quick to dismiss Keynesian economics, when it comes to both explaining the dismal performance of our economy and proposing credible policies. But dismiss the insights of John Maynard Keynes at your own peril.
This said, here are my predictions for 2016:
- The Canadian economy will continue its dismal performance. In fact, there is a real possibility data will show we are in a continued recession and July was an anomaly. After an encouraging spurt of growth in July, the Canadian economy has been declining, with September's growth dipping back into negative territory and October running on empty.
- The continued decline in oil prices. In March, I speculated oil could even go below $30 a barrel based on the reluctance of OPEC (Organization of Petroleum Exporting Countries) members to curb production. We are not far from there now. Investment in the oil industry will continue to weaken.
- The continued decline of the Canadian dollar. We are not near the bottom of the currency's decline and could well see a new normal of 62-65 cents.
- The continued decline in interest rates. Indeed, Stephen Poloz will most probably decrease rates to 0 this year. He is now openly speaking of negative rates.
- Liberals will realize that a $10-billion deficit is grossly inadequate to kickstart the economy. They will be reluctant to spend more, but spend more they must. Expect the deficit to balloon, and that will be a good thing. We have no choice.
- The world economy will continue its rather moribund way. There will be continued weakness in the Chinese economy, as well as in emerging economies such as Brazil.
- The unemployment rate will start to rise again, with the real unemployment rate, taking into account labour market participation, to rise above 10 per cent.
- Expect the U.S. economy to show real weakness. Data is showing some rather patchy performances, with labour market participation remaining very low and wage growth weak. An economy cannot show real growth with that kind of negativity.
- Europe will continue its weak economic performance, fuelling the further rise of fringe and extremist political parties. Political instability will be the norm.
- With continued low rates, Canadians will increase their debt loads unless the government gets serious about tightening how much we can borrow — which it can, but it does not have the political will to do so.
Louis-Philippe Rochon is an associate professor at Laurentian University and co-editor of the Review of Keynesian Economics.