| Economic forecasts |
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| Written by Rigmar Osterkamp | ||||
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Contrary to natural sciences like physics, in economics there are no strict “laws” on which a forecast could be firmly based. It’s all about behaviour of human beings by which the future course of economic development is determined. Nevertheless, a look into the economic future is tempting for everybody and the profession of economists reacted accordingly and created some forecasting tools. The internationally most accepted tools are briefly explained. It is mentioned which institution in Namibia employs one or the other of the methods. Finally, the article presents recent forecasts for the Namibian economy.
The simplest way to forecasts is to prolong the current
trend or last year’s growth rate. This unsophisticated naïve method,
surprisingly, often gives good results. (Similarly, the simplest
weather forecast is to say the weather will remain as it was yesterday.
Such “forecast” is, indeed, in most countries correct for more than 50%
of forecasts done, in Namibia it may be even 80%). Secondly, one can
use indicators which have proved to have a “leading”(forerunning or
early warning) property is ascribed by many economists to the results
of regular business tendency surveys, to the stock market index, to
investment and construction activities, to changes of inventories and
to a variety of international indicators, like changes of raw material
prices, of interest rates or of growth rates of important trading
partner countries. In Namibia, IPPR publishes a monthly business
tendency survey. A third method is not a forecast in the strict sense and therefore often called a projection, estimate (“guesstimate”) or outlook. Experienced observers collect and evaluate information about trends and events which they think are important determinants of the future economic development. To arrive at such an informed estimate may demand a laborious analytical effort and time consuming procedure, which may also involve the construction of different “scenarios” (assumptions). The limit of the method is that the results bear a strong subjective moment, which is impossible to fully display. The economic Policy Advisory Service (EPAS) of the Ministry of Finance- together with Bank of Namibia and the National Planning Commission – employs this method for an annual three-years projection (including scenarios), called Macro-Economic Framework, which is then used for the medium-Term Expenditure Framework of the Ministry. IPPR, too, applies such a method for its annual “outlook” however, without scenarios. It is surprising that IPPR does not use its own business survey in its outlook. |
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