MacroScope

Britain’s independent Office for Budget Responsibility slashed its growth forecasts for this year ahead of George Osborne’s Budget on Wednesday. But looking longer-term, it now has the unusual distinction of being more optimistic about Britain’s long-term economic health than the Bank of England, often pilloried for its rose-tinted views.

And rightly so. The Bank’s famed GDP fan charts have been exceptionally over-optimistic. Until recently, it routinely suggested the economy was more likely to grow more than 5 percent annually than contract even slightly, which was plainly absurd.

In its short life, the OBR too has had its fair share of forecasting blunders. Created with the arrival of the coalition government in 2010, that June it predicted 2012 GDP growth of 2.8 percent. In Wednesday’s report, it estimated the economy instead grew 0.2 percent last year.

Both the OBR and the Bank share a view that the UK economy will soon enjoy a semblance of moderate growth (a prediction that keeps getting pushed back). However, there’s a very slight, but revealing divergence of views.

Unlike in previous years, the Bank’s GDP fan chart from its February Inflation Report (pictured right and reversed) keeps open a small probability the economy will shrink on an annual basis between now and 2016, and likely beyond.

Remember those green shoots? Ever since Fed Chairman Ben Bernanke uttered those words in response to the first signs of recovery from the Great Recession in 2009, many forecasters – including Fed officials – have consistently overestimated the economy’s strength.

Some economists believe 2013 could finally be a break-out year. With the fiscal cliff now in the rear-view mirror and the euro zone crisis apparently stabilized, some see the prospect that growth could actually exceed expectations for the first time in a long while.

Dennis Lockhart, president of the Atlanta Fed, said this week he sees a chance the economy might actually surpass his 2013 growth forecast range of 2-2.5 percent.

A panel of economic luminaries took the stage in Chicago this afternoon to join in a tradition repeated this time of the year in cities across the country, opining on the outlook for the coming year.

Raghuram Rajan, a finance professor at University of Chicago’s Booth School of Business, began with a joke involving 973 sheep and a dog, the butt of which was the intellectual capacity of economic forecasters. He went on to predict slow world growth ahead, highlighting the geopolitical risks from conflict in the Middle East and Asia, and the limits of fiscal and monetary policy to turn things around.

Carl Tannenbaum, Northern Trust’s chief economist, focused on the still-troubled housing market and risks posed by the failure of European political leaders to resolve their financial crisis (he observed that Americans frustrated by the deadlock in Washington over resolving the U.S. fiscal cliff have only to look across the Atlantic for comfort that things, certainly, could be worse).

2012 has been a year to forget for Brazil’s struggling industry – just like the year before. But a weekly central bank survey of around 90 financial institutions says that will all change next year and industry will grow at healthy 4 percent pace.

Will it?  One year ago, the same survey predicted 4.1 percent growth for 2012. Despite massive stimulus by President Dilma Rousseff’s government, including record-low interest rates and billions of dollars in tax cuts that were off everyone’s radar, industrial output in Latin America’s largest economy is set to fall by 2.3 percent.

The same pattern happened the year before. Two months before the start of 2011, analysts expected an expansion of 5.3 percent in Brazil’s industrial output but in the end it grew by only 0.3 percent.

As traders and economists hash over the sharp and unexpected drop in the U.S.jobless rate to 7.8 percent, they might do well to review some key data points that offered early hints that at least some households were seeing improvement in the labor market. Wall Street analysts in a Reuters poll had forecast a rise in the unemployment rate to 8.2 percent.

Even as big companies were laying off more workers or at least holding back on hiring, The Conference Board’s consumer confidence data showed workers felt more encouraged about finding jobs. The Thomson Reuters/University of Michigan survey depicted a late summer upturn in consumer mood even as gasoline prices remained high. The latest ADP report, with all its perceived flaws, indicated a consistent, moderate acceleration in hiring among small- and mid-sized companies since late spring even though big firms seemed reluctant to expand their payrolls.

The graph below shows confidence improving as job prospects brighten.

“Will he or won’t he?” That’s what investors, traders and policy-watchers in the financial markets are pondering, frozen at their terminals waiting to find out if Federal Reserve Chairman Ben Bernanke will persuade his colleagues to print more money this week.

Among economists who work for primary bond dealers, the firms who sell government bonds directly to the Fed, there’s a striking conviction rate that he will, 68 percent, according to the latest Reuters Poll of probabilities.

The wider forecasting community isn’t far behind, at 65 percent.

While that kind of probability is more than enough to make people paid handsomely to take huge bets with other people’s money to confidently say something is a done deal, the real policy decision is probably a lot closer.

High inflation is a drag on economic growth in the world’s second most populous country and matters immensely to over 400 million people, or over a third of India’s total population, who struggle to earn enough to feed their families three meals a day.

The particularly volatile nature of inflation in India has confounded policymakers and small business owners and has left economists, who are often running complex statistical models based on a dearth of reliable data, with a poor forecasting record.

To be fair, predicting economic data can be pretty tough in a country where collecting and reporting national statistics is still in its infancy stage. Provisional numbers are often completely revised away.

If Reuters polls onthe euro zone this year have proved anything, it’s that forecasts concerning the future of the currency union really boil down to national bias and not just plain economics.

Last week’s global polls of fund managers proved that’s just as true of investors as it is for analysts.

It’s a well-established trend: economists working for institutions based inside the euro zone are far more optimistic about its future than those from Britain or the United States.

U.S. non-farm payrolls have come in below the Reuters Poll consensus for the past four months, the longest streak since an eight-month period in 2008-09 when the U.S. was in the depths of recession and, at one point, losing more than half a million jobs a month.

Compared with a few years ago when there was a very wild range of forecasts on a given jobs report — the widest spread polled since the financial crisis began was 575,000 for the May 2010 data — economists are now huddling together in a pessimistic pack.

For the July data, due out at 1230 GMT, the range of forecasts in the Reuters Poll (on a consensus of 100,000) has narrowed to a 107,000 spread between highest and lowest, compared with 132,000 for the June data.

As the usual end-of-year predictions roll in, perhaps the safest bet was captured this tweet from Bajaji Sridharan:

Since everyone is making predictions for 2012, here’s my prediction — 90%+ of all the 2012 predictions will be wrong.

It was another way of expressing a sentiment eloquently phrased by the late economist John Kenneth Galbraith – and frequently quoted by Dallas Fed President Richard Fisher – on the commonalities between economics and the stars. Galbraith wrote: