Hey I got one right! .......but so did everyone else.

Real GDP (quarter-over-quarter annualized) came in at -3.4% for the second quarter, just a shade better than my forecast of -3.5% (I've been having problems with my forecast link not working so I've taken it down until I can figure out a better way to link to it -you'll have to just trust me on this one.)

For whatever reason there was quite a bit of (correct) consensus on the growth prospects for the 2nd quarter:

Actual: - 3.4
WCI (Stephen Gordon): -3.4%
BoC: -3.5
SMC (Me): -3.5
BMO: -3.3
RBC: -3.2
CIBC: -3.1
TD: -2.2
Scotia: -2.0

The one thing the above list ignores is vintage (which I'm too lazy to dig up right now). The last time I made a forecast was sometime in early July, while others like RBC and TD were mid-June.

Congrats to Stephen Gordon for nailing the number right on the head (I know yours was more of a preliminary estimate based on available 2nd quarter data, but still, kudos.)

Consensus Forecasts: Bloggers vs. Bay Street

As a follow up to the Great Canadian EconoBlog Forecast contest, I thought it would be interesting to compare the opinions of Canadian economics bloggers with the pros on Bay Street. The charts below compare the mean forecast and range of forecasts for 4 of the macro-variables in the contest made by Bloggers and Bay Street (I didn't have time to gather TSX forecasts from the Banks). The sample includes TD, CIBC, Scotia, RBC, and BMO (apologies to National Bank, I couldn't find updated forecasts on your website). The sample of bloggers includes myself, Nick and Stephen from Worthwhile Canadian Initiative, Mike Moffat, and Andrew from Stackelberg Follower. I know others made forecasts but if I couldn't see a link to a blog, you weren't included.



It is interesting that the variable that is the hardest to forecast, the exchange rate, has an appropriately large range (78 cents to 94 cents) and that this range is almost identical between groups of forecasters. Moreover, the Banks would seem to be slightly more bullish on growth, hence the BoC target close to 1%, than the bloggers consensus of only about 0.5%. Other than that, it is generally agreed that inflation will be too low and unemployment too high.

Canadian Econoblogosphere Forecasting Contest 2009

The fellas over at Worthwhile Canadian Initiative have thrown down the proverbial gauntlet - here are the rules:

1. Unconditional point-forecasts only, for 5 macroeconomic variables: CPI, Unemployment Rate, US/CAN Exchange Rate, BoC Target, TSX (My forecasts are the product of a small-scale model so I'll throw in a real GDP forecast as well).
2. Only those who have made a forecast will be allowed to laugh at others' forecasts in January 2010.
3. No prize for the best forecast (other than bragging rights).
4. "Best" forecast is defined as that which minimises the following loss function:
Loss = sum of absolute value of [(forecast-actual)/latest available end of 2008 actual].

Here is what I think is in store for 2009:

CPI Inflation: 0.6%
Unemployment Rate: 7.1%
US/CAN Exchange Rate: 94 cents (with bias downward)
BoC Target: 0.75% (just to be different)
TSX: 8780
Real GDP Growth: -1.7%

That was fun, great idea guys!

Revised BC Forecast

I've been thinking a lot about how BC may be impacted by a Canadian recession and how that impacts my forecast. Here are the relevant facts:

1) Canada is almost certainly going to be in a recession to start 2009. If standard models for the transmission of US shocks to the Canadian economy hold, a 4%-6% decline in US growth could translate to 1.2%-1.8% decline in Canada - on top of softening domestic demand. These shocks should hit BC through inter-provincial and US export channels.

2) According to BC Stats, inter-provincial exports account for about 16% of BC GDP, with most of the trade occurring with Ontario and Alberta. In the 1990 recession, BC exports declined about 2% and in the 1982 recession exports declined close to 11%.

3) International exports account for 28% of BC GDP. In the last US recession, these exports fell 5%. Moreover, key BC export sectors - mining and forestry - are in serious trouble.

This all sounds really awful - perhaps too awful to produce 1.3-1.4% growth. Taking the above into consideration, my revised forecast says that without VANOC stimulus, the BC economy would likely slip into a recession, posting growth of -0.2%. With VANOC spending, and its indirect effects, growth should be bumped up by 0.4%-0.5%.

Therefore, the revised forecast is 0.2-0.3% - 2010 saves the day! (just kidding, no hate mail please).

This is totally going on my blog...

First a note about this blog: As the subtitle implies, I've started this blog in the hope that it will act as a device to flesh out and organize my own ideas about economics and to aid in learning some new tricks. Doing so with an audience, even if that audience is limited to my wife and bored friends and family, will help provide some discipline. Second, there is a paucity of quality Canadian economics blogs. One is the excellent Worthwhile Canadian Initiative, I can't think of any others. My hope is to approach their level of quality, but I expect to fall woefully short.

What you can expect to find here - macroeconomic analysis of the Canadian and US economies. I'm hoping to start a forecast log to keep track of my own predictions, but that project is still under development. My interests are mainly monetary policy, exchange rates and financial markets, and so that is likely what i'll be posting about.

Lastly, I realize the best blogs are ones that have frequent new material and so I'll do my best to post as often as possible.

On with the show!