TKer's 2023 chart of the year 📊
Economists' GDP forecasts took a big round trip 📉📈
This eye-popping chart comes from UBS’s Jonathan Golub. It shows how economists’ forecasts for GDP growth in 2023 evolved over the past two years.
“The GDP chart below highlights the improvement in economic growth that we've experienced over the course of 2023,“ he wrote on Monday.
How did we get here?
The chart starts in January 2022. At the time, things were looking pretty great. The stock market was trading at a record high as earnings were expected to continue rebounding. Household and businesses finances were robust. Interest rates were low. And inflation was still thought to be transitory.
But inflation continued to heat up, as hot demand remained out of balance with tight supply chains. Monetary policy tightening from the Federal Reserve wasn’t going to be a walk in the park. Rather, Fed Chair Jerome Powell warned winning the fight against inflation could require economic “pain.”
For more on monetary policy in 2022, read: TKer's 2022 word of the year: 'Pain' 🥊
For many, “pain” meant recession. (However, Powell never explicitly said that was necessary.) Stocks tumbled through much of 2022, and cuts to 2023 GDP growth forecasts followed, as it looked like the Fed would have to keep rates higher for longer as it tried to rein in the economy to cool inflation.
But as time passed, economic growth persisted even as inflation continued to cool. Throughout the year, attitudes shifted favorably as evidence mounted suggesting the emergence of a bullish “Goldilocks” soft landing scenario where inflation cools to manageable levels without the economy sinking into recession.
That brings us to present day, where GDP growth is looking a lot like what economists once forecasted two years ago. The economy has created jobs every month year to date, consumer spending has climbed to new record highs, and GDP growth has remained positive — even accelerated in Q3.
Zooming out 🔭
TKer’s 2023 chart of the year is a lesson in the perils of forecasting. The economy and the markets can be unpredictable in the near term.
With each twist and turn in the high-frequency data, it becomes increasingly tempting to make revisions to those initial forecasts. And on some occasions, you learn that original forecasts were much more accurate than the revised ones.
What’s next for the economy?
Economists are split on whether the economy will go into a short and shallow recession, or if growth will just cool.
Of course, those forecasts are subject to change.
And unfortunately, we’ll know what actually happened only in hindsight.
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