Three Strikes – A Strikeout

In baseball, the player that is supposed to bat is declared out when he misses three strikes. Switching to economics now, let’s have a walk together on the economic forecasting road. According to Professor Thomas Kida from the University of Massachusetts “… economics typically does not use the scientific method, where hypotheses are tested by observing what goes on in the economy. Instead, economists often develop elaborate theories that may be logically consistent, but are often based upon unrealistic concepts.” To me, there is nothing wrong with being off-the-chart once or twice. However, persisting in statistical outliers should strike you out from the economists’ table. As we all remember from the Latin lessons “errare humanum est perseverare diabolicum”. Then, let the case reveal itself.

The International Monetary Fund
1. in April 2008, the IMF – Bucharest mission, has revised its 2009 GDP growth for Romania: from a previously expected level of 5.8 percent to a growth rate of +4.7%. Meanwhile the global financial meltdown reached unparalleled distressed levels
2. on November 27 2008, according to the IMF representative, Juan Fernandez Ansola, the estimates for 2009 GDP growth have been lowered to a new level of +3.5 percent
3. during the month of January 2009, while the IMF was negotiating with Romanian authorities, the fund practically updated the GDP advance at 2.3 percent The entire world was on the verge of a financial collapse and IMF still expected no economic downturn for Romania
The European Commission
1. in December 2008, the EC estimated that Romania will face a slower economic growth of 4.7 percent for the full-year 2009
2. in January 2009, EC released e new estimate of the Romanian economy, significantly reducing the GDP growth forecast from previously expected level of 4.7 percent to a positive growth of merely 1.75 percent. In the meantime, global markets were tumbling pointing towards the worst recession since the Great Depression
3. in May 2009, EC reacts timidly to the massive credit crunch wave and moved to a slightly more pessimistic perspective for the 2009 GDP growth, predicting an economic contraction of 1.4 percent
Romanian Banks
1. on November 26 2008, Lucian Anghel, the senior economist at Erste Bank, said “I don’t think it is reasonable that Romania to go into recession in 2009, but on the contrary, “with a bit of wisdom”, as the governor said, I think we are likely to have a 4-5% growth of gross domestic product next year. Our forecast is 4.4% for 2009.”
2. in February 2009, Erste Bank chief economist reacted to the Central and Eastern European financial meltdown indicating “a slow-down of the Romanian economy around the level of 1% in 2009, correlated with an economic decline slightly above 1% in the euro area.”
3. in May 6 2009, when the global financial meltdown reached its 18-month milestone, Erste Bank revised the estimates for the Romanian economy. Its chief economist stated that “the economic growth will be negative in 2009 and will be around 2.1 percent”. However, according to Mr. Anghel “the economic crisis effects will not be so dramatic on Romania.”
Romanian Government
1. in August 2008, the National Prognosis Commission (NPG) estimated that Romania’s economic growth would rise above the annual 5% threshold until 2020 and NPG predicted that the GDP growth would exceed 6% only in 2009
2. during the first half of January 2009, the NPG downsized GDP growth expectations from somewhat over 6% to +2.5 percent The Romanian economists, as interviewed by Business Standard; all estimated (with a single exception – the ING chief economist) positive growth rates, ranging from 1.7 to 4.5%. The expected GDP growth rate averaged 3 percent
3. in May 4 2009, the NPG has deeply revised its economic projections for the current year. announcing a 4% economy contraction for 2009
The National Bank of Romania
1. in November 2008, the NBR officials stated that despite an imminent economic slowdown, Romania would completely avoid the recessionary pressure. Moreover, Mugur Isarescu, the NBR governor, said that the annual GDP growth for 2009 would fall between a wide range of 3 and 6 percent
2. in December 2008, NBR governor reinforced the previous estimates which showed a positive economic growth for 2009. As supporting argument he pointed to the World Bank’s economic forecast for Romania that read an annual GDP growth of 3.2 percent for 2009. A month later, Mugur Isarescu and the Romanian Finance Minister used a projected economic growth of 3.5% for the 2009 budget
3. in June 2009, a month after the release of the dismal first quarter GDP number, NBR spokesperson defended central bank’s previous estimates. He claimed that the NBR had accounted for a downturn in the first half of 2009 followed by a strong economic resurgence in the second half of the year that would put the full-year GDP growth rate in positive territory.
According to preliminary data provided by the Romanian Statistical Institute, the GDP of Romania declined by 2.6% in the first quarter of 2009 compared to the last quarter of 2008 and recorded a year-on-year contraction of 6.4 percent.

It is well accepted the idea that nobody has the crystal ball. However, there should not be a humongous spread between the estimated and the actual values, especially when the forecasting process is managed by the experts. Though we do not have the final 2009 GDP figures, we just witnessed in the aforementioned examples spreads running in hundreds of basis points. Qvot erat demonstrandum. I rest my case.