Prediction has always been a tough business. But economists and analysts say it has become a game increasingly fraught with error amid spreading uncertainty about the fate of global and regional economies.
"The volatile economic climate is dealing economists a difficult hand at the moment," says Daniel Kaye, an economist at the National Bank of Kuwait. "Economists were blamed for not seeing this crisis in the first place, but now that it's happened, it's fair to say we do live in a more unpredictable world than a few years ago. The outlook is fairly uncertain, and nobody can be truly sure about what's going to happen next."
That lack of certainty is abundantly clear in measurements of the accuracy of global and regional forecasts. Bloomberg's index of analyst accuracy in predicting the profits of the US's largest companies sagged to its lowest point in late 2008 and remains at historic lows. About 8.2 per cent of analysts correctly predicted US company earnings in this year's first quarter, down from above 30 per cent at the end of 2000.
Predictions about GDP growth in the Gulf tell a similar story. In late 2008, the IMF predicted the UAE's economy would grow by a healthy 6 per cent in 2009. In its most recent global outlook, however, the fund estimated the country's economic output last year actually declined by 0.7 per cent, a dramatic swing that economists say reflects the growing difficulty of making forecasts. The IMF has made an even more radical downwards revision of its view for GDP growth in Kuwait and Qatar last year - by 8.5 percentage points and 12.4 percentage points, respectively.
A dearth of good statistics for the region is in part the cause of the wide fluctuation in forecasts, economists say. Many Gulf countries release official economic growth figures just once a year, forcing economists and analysts to use anecdotal estimates and global patterns to make their mid-year predictions. The UAE generally follows this pattern, although Sultan al Mansouri, the Minister of Economy, periodically updates the Government's outlook.
"Most countries in the region only publish GDP figures once a year, so that makes the scope for error even greater," Mr Kaye says. Against that backdrop, global surprises such as Europe's recent debt crisis and the ensuing drive towards fiscal austerity have only clouded regional economists' already-murky crystal balls. Given the Gulf's tighter links with the global economy - links that were painfully exposed at the onset of the financial crisis, when many commentators had hoped the region's big oil reserves would insulate it from trouble in western economies - the potential for a shaky world outlook sending tremors through local economies has become an important factor in predictions.
"When there are major unanticipated shocks to the system, both at the global level and the local level, it can fundamentally change the present and thus require us to think again about where we're headed," says Simon Williams, the chief economist for the Gulf at HSBC, who is projecting 2 per cent GDP growth for the UAE this year, ahead of the IMF's 1.3 per cent prediction. "But I think it's then the role of the forecaster to understand the drivers and to gauge where they're taking the economy to, whether we're talking about the UAE, the UK or the US. The lack of timely and reliable data here makes that job harder, but I don't think it prevents you as an analyst from picking out the narrative. A forecaster should understand what the key drivers are, what impact they're having and how that affects growth."
Opinions vary on how precise economists' estimates ought to be on GDP growth, inflation, company profits and other standard economic figures for the region. Some economists say they avoid precise forecasts or build in margins of error because they want their reports to reflect their underlying uncertainty. Others are comfortable coming up with numbers, but they emphasise that their estimates should be taken more as guides than as firm predictions. In the GCC, as in other emerging markets where data are scarce and economic indicators volatile, analysts say forecasting is more about constructing an overarching narrative of growth than pinning down specific numbers.
"In general, it's not easy to forecast," says John Sfakianakis, the chief economist at Banque Saudi Fransi. "Usually, we try to put a lot of emphasis on forecasting and how accurate we are, but as an economist you can only forecast accurately the trends over the next three to six months and say the economy is either growing or not growing." Beyond that, he says, "you're becoming a fortune-teller or astrologer rather than an economist".
So should the public trust the forecasts that the region's economists produce? Mr Sfakianakis says people should look at economists' analysis more closely than their figures. He also notes that most economists in the Gulf, including himself, are employed by banks that may defend their commercial interests to the exclusion of blunt economic assessments, especially when they involve less-than-stellar forecasts.
"The world should be looking less to economists to explain things," he says. "And I think economists in the region have to be more down to earth when it comes to predicting things because they have very little to play with and have access to." afitch@thenational.ae
