It is no wonder economists are wrong more than they are right. The broad economy is incredibly uncertain.
Forecasts require a wide range of things coming together to produce an outcome. Just one change can have a massive impact on the predictions.
For example, all economists were predicting a sharp decline in house prices at the onset of the Covid pandemic. What they didn’t predict though was the ability for employees to remain employed thanks to government support, in addition to peoples desire for a stable home. Another example is economists constant predictions that interest rates were going up over the last 10 years, but they have gone the opposite direction. Or a recession has been around the corner for the last 12 years.
Yet many people probably put a lot of weight into some of these predictions and made decisions based around house prices falling, interest rates rising, or a forever impending recession.
On one hand I feel somewhat for the economists. It really is a game you are bound to lose when making multiple predictions. There are too many moving parts to get things right consistently. But the media love to push the issue and get those juicy soundbites or headlines.
Then the economists feel the need to justify why they got their prediction wrong. “But this happened” or “that happened”. But that is the point of the economy. There is always something unexpected happening.
Everyone loves a prediction. We all want to know what is going to happen or likely to happen. It gives our life some sense. Some control. But it’s just an illusion. Predictions aren’t accurate at all because life is uncertain. The sooner you can face that reality the better.
The point I am slowly getting to here is that predictions are extremely dangerous and should come with a huge disclaimer.
But they don’t. They are stated as a matter of fact when they are far from fact.
The economy by its very nature is unpredictable. So predicting the unpredictable is a fool’s game.
As we approach a new year where we will see many predictions about the year ahead, my message is to try not to place much emphasis on predictions. Whether it is an economist or someone else’s.
An example in our life is that we are looking to build a house. With build costs increasing and existing house prices decreasing and talk of a recession you may say we are crazy. Most economists are predicting the gap to only get worse too. Some economists are now predicting builders work to dry up and with a combination of less work and rising costs a glut of builders will lose their livelihood. This might mean more competitive pricing for us. But we don’t want to wait to find out if a “maybe” eventuates. For us, the decision to build works. We know why we want it and we know we can manage the financial side of things.
You know your situation better than anyone. Make your financial decisions based on what works for you. Not what someone else thinks “may” happen.
There are no consequences for their predictions but there are huge consequences for your decisions.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here