Looking at search terms, the recent turmoil in financial markets seems to be leading people to look harder for economic predictions, particularly summary predictions for 2008.
Here are my economic predictions for 2008:
United States (predictions made September 8, 2007)
- Overall, economic growth for the United States will be weak. Total inflation-adjusted GDP growth will be between 1% and 2%.
- Over the year various parts of the financial system will prove to be far less liquid than expected. There will be several scares during which one or another part of the financial system either freezes up or threatens to (as interbank lending did in August, 2007). This will defeat the risk models of even the best investors, and there will be at least four high-profile investment banks and/or hedge funds that become insolvent. Mostly these will get bailed out (probably by their main creditors), but at least one will be allowed to fail.
- The United States dollar will fall significantly against other major currencies over the course of the year. It will end the year between 15% and 35% lower relative to a trade-weighted average of other major currencies.
- Unemployment will grow significantly but not precipitously (between 0.25% and 0.75%) during the first half of the year. Unemployment will decrease slightly during the second half of the year.
- Wages will be weak throughout the year, especially in the second half. Overall, wages will be in line with inflation (+/- 0.25%).
Note added April 5, 2008: The overall growth number for the year (first prediction) now looks to be closer to zero. The other predictions appear to be on track.
Note added October 2, 2008: The scares and failures prediction has now been fulfilled. The dollar is looking stronger than the prediction, but it’s hard to day at this point how the rest of the year will play out. Most of the other measures now look like they’ll be worse than I expected.
