“While central banks and governments are reluctant to admit a slump is coming, especially in the US, financial investors are not so sanguine. Another strong and reliable sign of impending recession has been so-called ‘inverted bond yield’ curve. An inverted bond yield curve is when the yield on long-term bonds (10yr) is lower than short-term interest rates (3m or 1yr). I have explained why this is a good indicator of a coming slump in various posts. Currently, the US bond yield curve is really, really inverted, which really, really predicts a recession. All four of the other times this curve broke below the zero line, a recession followed in short order.”
At the end of every year, I attempt to make a forecast on what will happen in the world economy in the next year. Of course, forecasts are wrapped in error, given the many variables involved that drive economies. Weather forecasts are still difficult to make and here meteorologists are dealing with physical events and not (at least directly) with human actions. Nevertheless, weather forecasts up to three days ahead are now pretty accurate. And longer term climate change forecasts have been broadly borne out over the last few decades. So if we consider that economics is a science (albeit a social science), and I do, then making predictions is part of testing theories and evidence in economics too.
How did the predictions I made last year for 2022 work out? In 2022, the world economy was expected to grow around 3.5-4.0% in real terms – a significant slowing compared…
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