0

Putting odds on a recession

Surprisingly, economists are not the best gamblers


 

The spectre of a double-dip recession is haunting the global economy. And like all spectres, nobody seems sure if it’s real.

A quick Google search of the phrase “recession odds” pulls up a slew of predictions. Goldman Sachs thinks there’s a one in three chance another U.S. recession occurs within a year. Fannie Mae calls it a “coin toss,” while TD Economics places the odds at 40 per cent.

Things weren’t much different last time around, in late 2007 and early 2008, when economists made a similar series of vague, non-committal guesses at the fate of the world’s largest economy. Former U.S. Federal Reserve chairman Alan Greenspan told CNBC at the time there was a 50 per cent chance the U.S. economy would slide into recession. Nearly one in three economists participating in a USA Today survey agreed with Greenspan, pegging recession odds at 50-50. Unbeknownst to all of them at the time, the recession was already upon them. According to the National Bureau of Economic Research, it officially started in December 2007.

Given the likeness between the predictions of then and now (the coin-flip analogy being commonplace), maybe the safest conclusion to make is not that a recession is imminent, but that economists just aren’t all that good at predicting them.


 

Sign in to comment.