As election and budget season approaches, one must/should/perhaps consider the economic ‘soothsayers’ and their recent/current record.
Consider the actual Wage Price Index versus the RBA/Budget forecasts over the last decade or more.
Missed. Them. All.
This is not an enviable record.
The nature of change, identifying new or unfamiliar determinants is, at best, a complex and fraught study. We should respect nuance and qualification.
It’s worth noting in public policy development the stunning and somewhat osmotic relationship between what represents a forecast and a projection. Further, the degree to which it has become acceptable for “the position of the administration” to subvert detailed evidence.
Bank forecasts for wage growth have been persistently too strong (Graph 1). The forecast errors have been largely the result of there being more slack in the labour market than anticipated and the decline in the terms of trade being sharper than expected. However, even after taking these factors into consideration, wage growth has been surprisingly low. This raises the possibility that the relationship between wage growth and its determinants has changed, or that there are other structural or cyclical factors weighing on wage growth.
Perhaps we don’t know what is going on?
Edit – 28th February
The main difference between a forecast and a projection is the nature of the assumption; in a forecast, these assumptions are based upon specific fact patterns, making it more representative of the expectations for actual future events.