. No one in 2022 predicted a series of bank failures. The frequency of these sorts of events is growing at an alarming rate.
Take the most recent data on the Canadian economy. The national GDP rose 0.5 per cent in January and a preliminary 0.3 per cent in February. So on an annualized basis, growth is trending around 2.5 per cent in the first quarter – about five times the rate the Bank of Canada predicted. Finally, not only is economic forecasting useless, it can lull us into a dangerous false confidence. How many Canadians stuck with a variable-rate mortgage in 2021, when thewas saying that mortgage rates would be staying low for an extended period of time? In the middle of the pandemic, this forecast seemed reasonable. The mortgage holders did their homework and listened to the forecasts of experts. But what a mistake variable-rate mortgages turned out to be.
The idea that anyone can predict GDP growth to a tenth of a percentage point is hubris. A better strategy would be to prepare for any possibility. That, to a certain degree, is what economic forecasters do when we apply a “high, low and base-case” probability to a range of scenarios.