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Predicting the future

Thursday, 6th December, 2012 12:00am

Clairvoyants in any walk of life are pretty rare but in the world of business and economics, when the variables are so volatile, they are even more so.

“All predictions are wrong,” says University College Cork economics lecturer Seamus Coffey.

“If there was a good predictor out there then we would have found them by now. The only difference between economists and other people is that we know the words. We know GDP, macro etc. It doesn't matter what one person says, it's the trend of predictions that I would take more notice of.”

Predictions  are a natural part of economics, especially within government departments trying to estimate what they may take in over the course of a year. Special interest groups are not immune to making such predictions either, with Retail Excellence Ireland predicting a downturn in consumer spending of half a per cent recently, despite spending over the last four months actually rising.

The industry body surveyed 172 retail companies with over 1,500 stores around the country and found that predicted retail sales would be down .47 per cent compared to December 2011. At the same time the organisation says that 60 per cent of retailers feel they would experience growth or parity with 2011 in December.

“Special interest groups are hard to pinpoint,” says Mr Coffey.

“No group is going to say everything is hunky dory while the economy is still down, not least in retail. It's hard to know the value of their predictions.”

During the Celtic Tiger there were people who predicted the downturn, notably David McWilliams and later Morgan Kelly, but while their predictions are now largely accepted, at the time there was little attention paid due to the overwhelming opposition to their thoughts,  according  to Mr Coffey.

“The problem is that you need lots of people making predictions in order for people to listen, in order for the predictions to come true.”

“You can never actually disprove a prediction. When you have a negative prediction and it doesn't come true a person can say 'Well people listened to me', whereas when it actually happens then the predictor is right. It's impossible to know.”

Despite  Mr Coffey's aversion to individual predictions, he does place a value on the trend of predictions, saying that the average outlook needs to be taken into account.

“People say that the government was a poor predictor but the fact is the Central Bank and the IMF were no different and made the same mistakes. There was under  predictions  and over predictions of growth. When I hear a prediction from the Central  Bank  now I think, 'so what?'

"Individual predictions from either one person or one organisation don't carry much weight.”

However, Mr Coffey insists that while individual predictions are suspect, there still needs to be the freedom to make alternate predictions to the present trend, in order to improve averages.

“To have the Taoiseach of the day [Bertie Ahern in 2007] saying that people should kill themselves for predicting an alternative situation was scandalous. We need the predictions, in order to inform ourselves on the trend - no matter what we believe may be true at the time.”  

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