Humans spend about a third of their time sleeping. Economies spend about a ninth of their time in recession.
Yet for some reason, economists are really bad at predicting recessions. In an International Monetary Fund (IMF) working paper released this month, Zidong An, João Tovar Jalles and Prakash Loungani crunch economists' real gross domestic product (GDP) growth forecasts versus actual growth figures for 63 countries from 1992 to 2014. For recession years, the results might be described – though the authors didn't use these terms – as a sad game of catch-up.
The average recession year knocked 2.98% off of a country's real GDP. The average private-sector real GDP forecast in the previous April (denoted "Apr[t-1]" in the chart below) was 202% off. Rather than a 2.98% contraction, the starry-eyed consensus was for 3.03% expansion. IMF forecasters fared no better.
Economists tend to adjust their forecasts down as the recession approaches, but don't – on average – predict contraction until April of the recession year itself. By October they're nearing what will prove to be the empirical result. Still, being in the ballpark 10 months into the year you're prognosticating about doesn't quite make you a Nostradamus.
That economists often fail to see recessions coming isn't breaking news. The IMF predicted in April 2008 that the U.S. economy would grow 0.6% the following year. It shrank 2.6%. (That guess, off by 123%, was actually much better than average.)
But despite all the criticism economists get (and probably deserve) for whiffing their forecasts so mightily, no one – least of all the media outlets that publish their projections – can offer a better alternative. Except, that is, ignoring the experts and flying blind.