Friday, January 25, 2019

Predictions of future top economies are not particularly reliable

An opinion piece in today's Globe and Mail gave me pause, with the bald and unvarnished prediction that, by 2030, the world's top 5 economies will be China, India, USA, Indonesia and Turkey. Turkey? Indonesia? It all seemed a bit improbable, so of course I checked.
My first recourse was to Wikipedia, which gives forecasts based on Pricewaterhouse Coopers' predictions for 2030 and 2050, using nominal GDP estimates using official exchange rates. This shows China and USA way out ahead in 2030, followed by India, Japan, Germany, UK, France, Brazil and, yes, Indonesia in 9th position. Hardly a mention of Turkey, which PwC has in 17th place. By 2050, China, USA and India are expected to be way out ahead of everyone else, followed by Indonesia in 4th position, then Japan, Brazil, Germany, etc. Turkey? In 12th place by 2050.
The Globe article, it turns out, is quoting from a recent forecast by Standard Chartered Plc, which does indeed have China, USA, India, Indonesia and Turkey as the top five economies in 2030. A look at the fine print, though, shows that this forecast is based on purchasing power parity (PPP), which takes into account differences in the cost of living of countries which is notoriously variable and difficult to predict.
Interestingly, PricewaterhouseCoopers' forecasts for 2030 on a PPP basis are quite different from Standard Chartered's, and has the top countries in 2030 as China, USA and India, followed distantly by Japan, Indonesia, Russia, Germany, etc. The situation in 2050, according to PwC, is not significantly different. And Turkey? 11th and 12th respectively.
Which just goes to show ... what? That long-term economic forecasting is a mug's game, and the results probably not worth the expensive paper they are probably printed on.

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