Economic Outlook

An economic outlook is a forecast which uses key economic variables to produce a scenario about what the global financial future will look like over the next two-to-five-year period.  The key variables that economists look at when making projections for any country are its Gross Domestic Product, Inflation, Unemployment, Current Account Balances or Debt, and Interest Rates.  These are the major variables, but there are many more including private and public consumption and investment, exports and imports of goods and services, and consumer prices.  While these economic outlooks or predictions are enlightening, they aren’t necessarily accurate because they are conditional on several factors remaining consistent.  These factors would be technical assumptions about future developments in exchange rates, oil and non-oil commodity prices, and assumptions regarding the fiscal, monetary and structural policies of other countries.  In other words, with fluctuating oil prices, war, and the devaluation of the U.S. dollar, even the world’s leading economist can’t exactly predict what the next decade will bring to anyone, financially speaking that is.

So while it does appear that economists are looking into a crystal ball of sorts, there are groups like the Organization for Economic Cooperation and Development that compile extensive information and publish reports and forecasts that can be relied upon as a thorough source for upcoming global economic scenarios.  Most consumers will get this information in some capacity from the financial news and be satisfied with what they have heard or read.  However, with a strengthening and sometimes chaotic global economy, these reports are worth looking into, especially since they are now focusing on economies driven or destroyed by oil prices, the American housing market, outsourcing of employment, and a new hot topic:  the future effect of an aging population on the global economy.

Apparently, the economic development of the planet has created a better quality of life and a longer life expectancy for people around the world.  Especially in North America and Europe, people are living much longer and healthier lives.  Economists are now seriously looking at the influx of consumers who are entering retirement and what this will do to the economy in the future.

In the United States, for example, the “Baby Boomers” are the largest group in the history of the U.S. to take advantage of pensions, home equity, life savings and investments, health and life insurance policies, Social Security, and other government programs like Medicare.  If you look at only a few of the key variables used to shape an economic outlook there is some cause for alarm.  The United States account balances could potentially be wiped out if everyone claims the benefits entitled to them through Social Security and Medicare.  As well, cashing in life savings and investments will help with consumer spending, but will definitely have an effect on the banking industry and the Gross Domestic Product.  With so many senior professionals leaving the workforce, the labor supply will also change dramatically.  These variables have definitely sparked some heated debate between economists who fear that we are relying on outdated economic theories, practices and policies which will eventually leave an unpayable debt to future generations.

Rising debt, trade deficits, job outsourcing and volatile financial markets do make the economic outlook seem bleak.  However, a lot of current economic problems that seem large are really macroeconomic in nature and can be managed by elected officials and policy makers.  Remember, an economic outlook forecasts the broader future, and it is really the larger changes in economic legislation and policies that will shape it.

Posted in Economic Growth & Development