Central bank forecasts for growth and inflation play a major role in setting monetary policy and making adjustments so let’s review just how spot-on (or not!) the estimates for 2016 have been.
Note, however, that the actual numbers for the year so far are based on either November data or Q3 reports so there is still some wiggle room left. Also, the projections for the year were taken from monetary policy statements in December 2015 up to the first couple of months of 2016.
It looks like the United States, Australia, and Canada have their work cut out for them in terms of catching up to their respective central banks’ growth estimates, as their annual GDP readings are still a few points short. In contrast, New Zealand’s performance has been particularly impressive, as its economy has expanded by 3.6% year-over-year as of Q3 versus the RBNZ’s 3% estimate.
Meanwhile, the U.K. has managed to outpace the BOE’s forecast even with Brexit uncertainties looming like a dark cloud on the economy for the most part of the year. Still, it could be too early to tell whether or not the annual GDP reading might dip below the forecast in case the Q4 numbers disappoint.
As for inflation, the FOMC expected stronger price pressures with a core PCE inflation estimate at 1.60% versus the latest 1.40% reading. The Australian economy’s annual CPI rate is still way below its 2-3% forecast range, along with New Zealand and the euro zone whose actual inflation readings are lagging far behind.
On the other hand, the U.K. once again outdid the BOE’s forecast, thanks to the additional upward pressure on local price levels stemming from the pound’s depreciation. Canada also saw slightly stronger than projected annual CPI figures while the Swiss economy seems to be warding off deflation at a faster pace than the SNB expected.
Not all major central banks share their labor market forecasts since majority of them are laser-focused on maintaining price stability and economic growth, but I’ve decided to highlight the ones that do pay close attention to jobs figures.
So far, it seems that all is good in the ‘hood as the U.K. has hit the mark with a 4.8% jobless rate while the U.S. went a notch better than expected to 4.6%. But when it comes to going above and beyond, New Zealand still takes the cake with a jobless rate of 4.9% compared to the RBNZ’s estimate at 6.20% from their December 2015 policy statement.
In a nutshell, it looks like the BOE and BOC have the most accurate forecasts in the bunch as their growth, inflation, and unemployment rate forecasts have been very closely in line with the latest batch reports. The FOMC and the RBA might have been a tad overconfident in terms of growth and inflation prospects for the year, but the U.S. and Australian economy still have time to catch up. Lastly, the RBNZ might need a new crystal ball!