Profs predict 2003 economic conditions

Sold-out crowd attends 21st annual Business Forecast Luncheon

2002-12-05 - A large crowd of Kingston business people joined Queen's School of Business professors for Business Forecast 2003, the 21st in a series of annual luncheons. Professors Marc Busch, Peggy Cunningham, Lewis Johnson, John McHale and Peter Sephton, along with Emeritus Professor Merv Daub (Moderator), reviewed the 2002 forecasts for national and international economic conditions made at this time last year. They then presented their own views on the economy for 2003 and beyond.

Professor Sephton reported that with respect to the 2002 predictions, growth in the Canadian economy, as measured by the change in the real Gross Domestic Product (GDP), was much higher than the group average forecast (which was for 0.9% growth versus an actual increase (based on preliminary figures) of 3.2% - see attached Table 1). Like many other forecasters, the group last year underestimated the continued strength of the Canadian economy especially in the face of a relatively lukewarm U.S. economy. It is interesting, as an aside, that over the past two years the economy has grown by a total of 4.7% whereas the group forecast it would grow by 4.2% which is not bad. It’s just that they got the fast and slow growth years of the two reversed!

This continued strength brought with it an upward pressure on prices which, of course, was not expected (i.e. given the initial weaker growth forecast). However, most of the rest of the forecasts, i.e., for the Unemployment Rate, the Prime Interest Rate and the Exchange Rate were quite close to their average yearly actual changes/levels. As regards Prof. Cannon’s financial market forecasts last year, he seriously overestimated the strength of the Canadian and U.S. stock markets but did not do too badly in respect of Canadian bond yields. It is clear from all of this that 2002 was an unexpectedly good year except for financial markets, which were unexpectedly poor!

Keeping in mind these results, the group moved on to predict 2003. Marc Busch, a trade specialist, commented on the situation outside of Canada, and its expected impact on the domestic economy; Peggy Cunningham, a marketing and consumer specialist, discussed spending on durables, housing and retail trade; Lew Johnson, whose area is Finance (he is currently also Acting Dean of the School) spent time on the markets; and John McHale whose research interests lie in macro policy, added his observations on monetary and fiscal policy.

In summary (see Table 2), Daub (Moderator) noted that there was reasonable agreement that the economy would experience a year of continued reasonable growth in 2003 of about 3% relative to 2002 (n.b., the average historical growth rate in Canada is around 4.0%.) Prices are thus forecast to be stable to up slightly in the face of this growth forecast, as is unemployment. Interest rates may rise somewhat later in the year as both the Fed and Bank of Canada continue to withdraw excess liquidity from the economy in a countercyclical fashion (especially if the U.S. economy continues its reasonable recovery). Finally, the Canadian dollar will likely remain essentially unchanged in 2003 or rise slightly over what it was during 2003. Daub also noted that all of the participants felt that as yet unforeseen consequences of a military action in the Middle East might well cause these forecasts to be somewhat in error although some such action had clearly been factored in already.

With these forecasts in mind, the Moderator wished everyone happy holidays and successful business dealings in 2003 and beyond.