Economic Predictions Thread

[solarz]

The purpose of this thread is to post economic predictions and check in a few years whether they came true or not.

First one:

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Desperate homebuyers, take a two-year breather. Housing speculators, take warning.

Toronto’s house-price juggernaut is two years away from the sort of peak it reached it 1989, when a housing bubble burst in the city, BMO Economics says.

“At the rate we’re now going with 20-per-cent year-on-year price increases, assuming stable mortgage rates and continued income growth, we’ll be at 1989 valuation levels in about 24 months,” senior economist Robert Kavcic wrote in a note last week.

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Condo buildings under construction in downtown Toronto. A new study from the Ryerson City Building Institute says there is no housing shortage in Toronto; home construction is above historic norms compared to population growth. (Photo: Getty Images)

Kavcic's note comes shortly after BMO’s chief economist, Douglas Porter, declared it’s time to “stop the pretense” and admit

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.

Toronto's average house price jumped 27.7 per cent in February from a year earlier, to $859,186. Single-family homes soared to $1.57 million on average, a jump of nearly 30 per cent in a year.

Kavcic provided a chart showing how affordability broke off from its long-run average in early 2016, and is headed into bubble territory.

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The 1989 housing market peak led to a seven-year period of house price declines in Toronto, with prices falling 39 per cent from their 1989 peak by 1996.

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No housing shortage in Toronto?

The most common explanation given by real estate industry insiders for Toronto’s rising house prices is that there is a shortage of housing supply in the quickly-growing city. That's the argument used by the Ontario Real Estate Association to call for looser density requirements and looser restrictions on urban sprawl.

But a new report from Ryerson University’s City Building Institute, released Monday, says the rate of home construction in the Toronto area is “well above historical norms.”

The rate of construction of single-family homes, however, is slightly below its long-term average, said the report from Simon Fraser University assistant professor Josh Gordon.

Loosening building restrictions would do little to improve affordability in the short term, the study argued. House prices are being driven upwards not by a real shortage but by “powerful expectational dynamics” — the belief that prices will continue rising, causing people to rush buying homes.

The number of listings coming on the market is at similar levels as always, but since people are buying more quickly, there are fewer active listings at any given time. For instance, in Greater Toronto there were some 6,300 active MLS listings as of Monday morning, compared to 14,300 in the Montreal area, according to Realtor.ca. That creates the illusion of a shortage.

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Cooling the market should be about "shifting" people's expectations, the paper argued.

“As housing bubbles are allowed to expand, many are hurt or drawn into unsustainable financial situations. This is particularly the case for young Torontonians,” Gordon wrote.

“When housing bubbles unwind, there is major collateral damage and people are hurt through little or no fault of their own. And the historical record is that they do unwind, essentially without fail.”

 

[Blackstone]

My prediction is President Trump's economic plan will yield initial gains, but run out of steam in the next three years. There will not be much net job gains from returning manufacturers, because most of them will automate as much as possible. Ian Bremmer of Eurasia group said about 86% of US job loss since 2000 were due to automation, not lower foreign wages, and I see no evidence automation will slow down.

President Trump also wants to lower corporate tax rates from 35% to about 15%. That's a great idea, but combined with his across the board income tax cut for Americans, there will be short-term reductions in Federal tax revenue. In addition, economic losses from protectionist policies will hamper GDP growth and depress net job gains. Trump tariffs will cause job losses in US import industries, and it will also cause job losses in the export sectors as foreign countries retaliate in kind.

Putting up some numbers, my guess is Trump might achieve 3.0% growth in 2017, 2.8% in 2018, 2.6% in 2019 and 2.4% 2020, and the GDP numbers are more likely to go down than go up.

 

[Yvrch]

Almost all quality research/analyst/forecast reports are paid subscription. If you know how to shop around you would get pretty good ones who would give you regular updates as new data come along so you are always ahead of the curve somewhat. If you are holding a huffingtonpost piece written today with what seems to be reasonable data set currently available and insist that must turn out to be true 2 years down the road, the joke is on you. You have unreasonable expectations or are just being naive. You got what you pay for. They are forecasting and updating all the time. Not that different from weather channel.

 

[solarz]

Almost all quality research/analyst/forecast reports are paid subscription. If you know how to shop around you would get pretty good ones who would give you regular updates as new data come along so you are always ahead of the curve somewhat. If you are holding a huffingtonpost piece written today with what seems to be reasonable data set currently available and insist that must turn out to be true 2 years down the road, the joke is on you. You have unreasonable expectations or are just being naive. You got what you pay for. They are forecasting and updating all the time. Not that different from weather channel.

So you're saying that when a major bank makes a prediction, it's worthless unless it's published only in paid subscription sites?

 

[Blackstone]

Let's see your predictions, Solarz.

 

[solarz]

Let's see your predictions, Solarz.

You misunderstand, this thread is to post economic predictions that we find in the news, not to make our own predictions.

The purpose is to gauge how accurate these mainstream media predictions are.

 

[Blackstone]

You misunderstand, this thread is to post economic predictions that we find in the news, not to make our own predictions.

The purpose is to gauge how accurate these mainstream media predictions are.

Your OP wasn't clear on the intent, but it doesn't hurt to make personal predictions to foster discussions.

 

[Miragedriver]

Your OP wasn't clear on the intent, but it doesn't hurt to make personal predictions to foster discussions.

Ok, for the sake of discussion:

The $49 trillion figure refers to (by UN sources) is 'public' debt, ie. government debt. That does not include private debt which is another figure and a separate story, and altogether more.

The money is owed directly and indirectly to 'savers'. Here are a few (somewhat simplified) examples:
Banks. Do you have cash deposited in a bank? Your banks will lend this money out to individuals, corporates and governments. Banks are generally heavy buyers of short term government bills, ie. they lend money to the US government on short term basis.

Funds. Have you invested your money in a bond fund or have money in a pension fund? Many bond funds and pension funds are heavy investors in government debt around the world (ie. lend it to different governments around the world).

Governments. Governments themselves are one of the largest holders of other governments' debt. For example, Japan and China are large holders of US government bonds. This is where it gets slightly complicated. A government can be both a borrower in one currency (usually its own) and saver in a different currency (usually the US dollar or Euro). A good example is Japan. Due to Japan's trade surplus, it holds a large US dollar foreign currency reserve. It will invest the US dollar in US government bonds (ie. lend it to the US government). However, Japan is a net borrower - it owes more in Yen than it has assets held in other currencies.

Does this matter to the common person? Yes, most definitely. A government unable to manage its debt balance will ultimately hurt savers like yourself (assuming you are a saver) and may topple an economy in extreme cases.

 

[Miragedriver]

You may be interested in a side note beyond the topic of this question. Inflation devalues a currency against another currency. It is meant to be economy's natural adjusting mechanism to improve a country's competitiveness. Ie. If the US dollar devalues against the Yen, it will make US goods more competitive relative to Japan. This is a common story in Argentina were currency devaluation is common and it forces one to buy tangible items such as gold, silver, or if you have more money you buy land, homes or other properties.

All this has some implications:

Countries which control their own currency, such as the US, can print money to repay debt. In the process, they improve their competitiveness by being able to produce goods relatively cheaper. Of course, this has to be managed very carefully to avoid the currency going into the debasement death spiral. Print just enough money to pay some debt, improve competitiveness, maintain confidence and hope economic improvement will take care of the remaining debt. There is at least a way out.

This is why individual Eurozone members are in trouble. Greece, for example, does not control the Euro. They cannot print to repay debt. They are unable to adjust the competitiveness of their labor force because they are stuck with the Euro. The Greek government must make deep budget cuts which has repercussions to the broader economy and social confidence. One alternative is to break away from the Euro and reestablish the Greek Drachma - a draconian measure that tempts fate. To avoid a default (at least in the short term), Greece will need a German bailout and debt forgiveness. Does Germany want to go through with this and keep throwing good money after bad? However, a Greek default will have widespread repercussions across the Eurozone (remember many banks, funds and governments hold Greek government debt). Does Germany want to risk financial and political contagion? The Euro is structurally flawed and there are many historical, political and long term economic consequences for Germany (and other Eurozone members) to consider.

The economic fate of many rests on the decisions of a few. This fiasco would be more interesting if it weren't so scary.

 

[Bernard]

America becomes great again /s