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Colon,
"EF, how did you reach those forecasts?"
I reached those forecasts using a 'trend-growth' rate estimate for the US, EU and Japan and then estimated how much the deviance from the trend would be.
I make an estimate of the trend rate of growth from the growth in the working-age population (16-64), estimated changes in activity rates and my estimate of long-term productivity growth.
In the period 2001-2005 I estimate that activity rates will change little - this is beacuse I believe the long-term rise in activity rates in the US and Japan has come to an end (in the US it was 72% in 1980, 78% in 1990 but only 79% in 2000) whilst I believe the recent faster rise in EU activity is mainly cyclical and making up for a large fall in the early 1990's (the EU's activity rates were 67% in 1980, 68% in 1990 and 69% in 2000).
Major projections for working age population can usually be very accurate for 5-10 years (as the people involved have already been born). I use the UN population figures for this.
My forecasts for workforce growth in 2001-2005 are:
United States: 1.0%
European Union: 0.25%
Japan: -0.25%
Then there are my estimates for long-term productivity growth.
In the US I believe that long-term productivity growth is around 2% a year (One important thing to note is that in these forecasts I use output per man-year to measure productivity not output per man-hour - this is because I have too little data on average hours worked for the countries involved - so it effectively discounts changes in working hours, this will tend to flatter the US rate compared to the EU's and Japan's).
I arrived at this by noting that many of the recent studies on the acceleration in productivity in the US estimate that around half of the change between 1991-95 and 1996-2000.
I also did a check of my own to try to strip out the 'tech-boom' effect - in this I measured the change in Net Domestic Product divided by employment, the effect of this is that instead of counting the increased turnover and depreciation of High-Tech good relative to the 'Old Economy' counting as an increase in income only the Net effect of the investment is counted.
This came in at 1.9% for 1996-2000
For the EU and Japan I have far less data so I made the brave assumption that they would have roughly the same rate of producitivity growth as they did during the 1990's - that's 2.00% for the EU and 1.25% for Japan.
Both of those figures tend to understate their productivity growth relative to the US's 'output per hour' both because of the aforementioned ignoring of changed in hours and the fact that due to the 'Hedonic' deflator used in US national accounts (but not in european or japanese) US growth is around 0.25%-0.50% overstated compared to the EU and Japan.
Putting these estimates for productivity and workforce growth together I can get estimates for the 'trend' rate of growth for 2001-2005:
United States: 3.00%
European Union: 2.25%
Japan: 1.00%
If you compare these figures to my growth forecasts you can see that I expect the US to grow by 1% a year slower than it's trend, the EU by 0.25% a year slower and Japan will grow at it's trend rate.
The reason for the US growing so much below it's trend is that in 2000 it was so far above it's trend, 3.25% in fact - the EU meanwhile was only 0.5% above it's trend in 2000 so it's 'recession' is likely to be relatively mild whilst Japan was 3.5% below it's trend in 2000 which is why I am forecasting a significant recovery in Japan during 2003-05 - in this I am assuming a sucessful reform of the Japanese economy and as such I have less confidence in my forecasts for Japan than those for the US and EU.
My forecasts have not been much affected by the September 11th terrorist attacks as I was expecting some sort of trigger to make the US consumer start to repair his balance sheet.
Likewise I was expecting a large swing of the US budget balance from surplus to deficit.
I am also forecasting a large fall in the value of the Dollar - around 20% in trade-weighted terms - between now and 2003.
"EF, how did you reach those forecasts?"
I reached those forecasts using a 'trend-growth' rate estimate for the US, EU and Japan and then estimated how much the deviance from the trend would be.
I make an estimate of the trend rate of growth from the growth in the working-age population (16-64), estimated changes in activity rates and my estimate of long-term productivity growth.
In the period 2001-2005 I estimate that activity rates will change little - this is beacuse I believe the long-term rise in activity rates in the US and Japan has come to an end (in the US it was 72% in 1980, 78% in 1990 but only 79% in 2000) whilst I believe the recent faster rise in EU activity is mainly cyclical and making up for a large fall in the early 1990's (the EU's activity rates were 67% in 1980, 68% in 1990 and 69% in 2000).
Major projections for working age population can usually be very accurate for 5-10 years (as the people involved have already been born). I use the UN population figures for this.
My forecasts for workforce growth in 2001-2005 are:
United States: 1.0%
European Union: 0.25%
Japan: -0.25%
Then there are my estimates for long-term productivity growth.
In the US I believe that long-term productivity growth is around 2% a year (One important thing to note is that in these forecasts I use output per man-year to measure productivity not output per man-hour - this is because I have too little data on average hours worked for the countries involved - so it effectively discounts changes in working hours, this will tend to flatter the US rate compared to the EU's and Japan's).
I arrived at this by noting that many of the recent studies on the acceleration in productivity in the US estimate that around half of the change between 1991-95 and 1996-2000.
I also did a check of my own to try to strip out the 'tech-boom' effect - in this I measured the change in Net Domestic Product divided by employment, the effect of this is that instead of counting the increased turnover and depreciation of High-Tech good relative to the 'Old Economy' counting as an increase in income only the Net effect of the investment is counted.
This came in at 1.9% for 1996-2000
For the EU and Japan I have far less data so I made the brave assumption that they would have roughly the same rate of producitivity growth as they did during the 1990's - that's 2.00% for the EU and 1.25% for Japan.
Both of those figures tend to understate their productivity growth relative to the US's 'output per hour' both because of the aforementioned ignoring of changed in hours and the fact that due to the 'Hedonic' deflator used in US national accounts (but not in european or japanese) US growth is around 0.25%-0.50% overstated compared to the EU and Japan.
Putting these estimates for productivity and workforce growth together I can get estimates for the 'trend' rate of growth for 2001-2005:
United States: 3.00%
European Union: 2.25%
Japan: 1.00%
If you compare these figures to my growth forecasts you can see that I expect the US to grow by 1% a year slower than it's trend, the EU by 0.25% a year slower and Japan will grow at it's trend rate.
The reason for the US growing so much below it's trend is that in 2000 it was so far above it's trend, 3.25% in fact - the EU meanwhile was only 0.5% above it's trend in 2000 so it's 'recession' is likely to be relatively mild whilst Japan was 3.5% below it's trend in 2000 which is why I am forecasting a significant recovery in Japan during 2003-05 - in this I am assuming a sucessful reform of the Japanese economy and as such I have less confidence in my forecasts for Japan than those for the US and EU.
My forecasts have not been much affected by the September 11th terrorist attacks as I was expecting some sort of trigger to make the US consumer start to repair his balance sheet.
Likewise I was expecting a large swing of the US budget balance from surplus to deficit.
I am also forecasting a large fall in the value of the Dollar - around 20% in trade-weighted terms - between now and 2003.
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