Economic forecasting in the public and private sectors

Economic forecasting is an indispensible function in the management of an economy or a firm. But forecasting future events whether economic or otherwise is very difficult. Even prophets at times have been proved wrong.

At one time the late professor of economics in the Massachausetts Institute of Technology (MIT) Paul Samauelson was quoted as saying world economy as it is now was never forecasted by anyone.

Following the financial meltdown in North America and Europe that started in the year 2007 Queen Elizabeth II visited the London school of Economics and asked the professors of economic why they had not seen the coming of meltdown, she did not get a convincing answer. Na economist from America who visited me about five years ago told me that some economics in the United States had foreseen the coming of the meltdown but that policy makers had been sceptical.

The last but one chairman of the board of Governors of the federal reserve system of the united states Mr Alan Greenspan wrote “over the years one reoccurring theme in discussions of forecasting both within and outside government has been the debate over the relative merits of economic modelling and institution or judicial approach. This is a distinction with the little meaning or practical relevance. With a few exceptions it is rare to find pure practitioners from either camp.

These economists not adept at mathematical quantification do make use of institution based on economic indicators. If a government is in deficit the government will do a lot of borrowing from commercial banks thereby squeezing out private borrowers. Interest rates will rise private investment will slow down, but what percentages no sure answer is given.

Ample sales of exports will bring in ample foreign exchange, the currency will appreciate the appreciation of the currency will make imports cheaper, but make some exports dearer. This is called the Dutch disease.

Too much borrowing from the central bank could saturate the economy with liquidity. This in turn could star an inflational spiral. Workers might become restive and demand wage increase to maintain their real incomes. A period of strike might follow if employers resist workers demands.

Drought and outbreaks of pesticides would bring about famines and other economic difficulties. Events of social and political insecurity would disturb economic activities such as tourism and foreign direct investment. This unfavourable economic situation will last as there is no certainty about the future.

The donors have indicated that they will not consider restoring their aid to Malawi until after the elections. What follows the elections will determine the timing of the resumption of the aid. If elections will be folllwed with the sort of riots that have occurred in some African countries, aid will be postponed indefinitely and the economic growth of Malawi will suffer.

The public affairs committe (PAC) has announced that it is communicating with presidential candidates about the maintenance of peace during and after elections. The preventive measures that the Pac is to adopt have not unfortunately been spelt out in the newspaper that i read. It is necessary to let the public know because it is among members of the public that peace or violence will take place.

Prayers work best where countries prepare themselves for the worst that might happen prayers are good, but sometimes they are never answered. Therefore supplementary action must be taken. Several times I have proposed that if none of the presidential candidates scores at least fifty percent of the votes there should be a re-run so that the public should be given chance to choose between two front least unpopular.

History is nowadays being emphasised in the teaching of economics in the universities abroad. It has been found that events have defied forecastings made even by most reputable economists of the world. Not everyone has forgotten that Nobel Prize laureate in economics Gunnar Mryeal had prophesized a glossy economic future for countries of South East Asia and the Far East thirty years later theses some countries had developed beyond expectation while like Singapore and South Korea had joined the league of developed countries.

Forecasts about African countries which were being made ten or fifteen years ago were unanimous in dismissing in dismissing the continent. Nowadays the world press tells us that ten of the fastest growing countries in the world are in Africa.

Forecasting based on a countries current macro-economic indicators get frustrated by events like new discoveries of minerals and oil. The case in point are discoveries of gas in Mozambique and Tanzania.