Paris-to-Frankfurt Forecasters Beat Wall Street RecordSteve Matthews
Distance from Wall Street has proven an advantage for some overseas economic forecasters who have been on-target with a more restrained outlook for U.S. growth than their American counterparts.
Five of the eight most accurate forecasters of the U.S. economy in the two years ended in December were outside the U.S., according to data compiled by Bloomberg. They were led by Christophe Barraud, of Market Securities-Kyte Group in Paris, who studied economics in France and has never visited the U.S.
“I think that being in France helps me be more objective,” said Barraud, 26, who earned a doctorate in economics from the University of Paris-Dauphine. He said he’s more prone to getting the French economy wrong, and has “underestimated French economic fundamentals,” reflecting his countrymen’s pessimism about their own economy. “On the U.S., I have no bias.”
Other overseas forecasters whose U.S. outlooks have been among the most accurate include Bernd Weidensteiner and Christoph Balz, with Commerzbank AG in Frankfurt; Gregorio De Felice, with Intesa Sanpaolo SpA in Milan; Rudolf Besch and Marina Luetje with DekaBank in Frankfurt; and Thomas Lam, with OSK-DMG in Singapore.
Overall, non-U.S. economists represented 24 of the 69 who submitted forecasts to Bloomberg.
An outsider’s view may have an advantage over Wall Street, said New York-based Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. He was the most accurate economist for the two-year period ended Sept. 30, and second-most accurate in the latest period.
“One of the things that I believe contributes to my reasonably good forecasting track record over the years is that I consciously try to read very little of the stuff that is produced by my counterparts,” he said. “I find that regardless of how hard one tries, it is very difficult to avoid absorbing other views and having them color your own.”
“I imagine that the distance that the non-U.S.-based folks have from Wall Street group-think gives them a decided advantage, and the good ones make the most of it.”
A base outside the U.S. may allow an economist to incorporate more international perspective into forecasts, said Lam, chief economist at OSK-DMG in Singapore. Last year, Europe’s recession and China’s slowdown proved to be drags on U.S. exports and influenced U.S. financial markets, he said.
“It has been a quite difficult global environment,” Lam said. “U.S. financial conditions are very tied to global markets. It is quite important to analyzing the forecast from that perspective.”
The overseas economists say they agree with the view, championed by Harvard University economists Carmen Reinhart and Kenneth Rogoff, that financial crises including the 2008 U.S. crisis are associated with slow recoveries.
The past two years have proven sluggish for the U.S. economy, with growth averaging 1.8 percent, according to data compiled by Bloomberg. The past recession lasted 18 months, ending in June 2009.
International forecasters also say they use methods based on tracking sales and factory reports and largely ignore public surveys of confidence.
For this year, Barraud projects the U.S. economy will expand 1.6 percent, with unemployment dropping to 7.7 percent from 7.9 percent. He said he’s concerned that slowing government spending, including the automatic budget cuts known as the sequester scheduled to start March 1, will hold back the acceleration in growth that Federal Reserve policy makers are forecasting.
“In the short term, the U.S. has to implement structural reforms and needs to reduce some of its public spending, which implies lower growth,” he said.
Barraud’s forecast for gross domestic product is less than the median projection of 1.8 percent in a Bloomberg survey of 73 economists from Feb. 8 to Feb. 13. Estimates range from 1.2 percent to 2.4 percent. The median unemployment forecast for the fourth quarter is 7.5 percent.
The professional forecasters are much less optimistic than the Fed, where most officials foresaw 2.3 percent to 3 percent growth, according to outlooks last made in December. The Fed forecasters projected unemployment between 7.4 percent and 7.7 percent in the fourth quarter.
The current success of non-U.S. forecasters is unusual. In the rankings of most accurate forecasters that covered data through December 2011, just two of the top 10 were based outside the U.S.
The overseas outperformance is probably a temporary circumstance, said Ethan Harris, co-head of global economic research at Bank of America Corp. in New York, who formerly worked at the Federal Reserve Bank of New York. “There is a lot of randomness in the monthly data releases and sometimes the best forecasters are simply good at finding some quirks in the numbers.”
Foreign-based economists’ current rankings may be “a coincidence, but I guess following this over time will answer the question,” said Dean Maki, chief U.S. economist at Barclays Plc in New York, who formerly worked at the Fed researching household finances. Maki was the fifth-most accurate, according to Bloomberg Rankings.
Commerzbank’s Weidensteiner, who with Balz was most accurate in forecasting personal spending during the past two years, said his estimates on consumer reports rely on understanding “there is often a disconnect between actual spending and sentiment. Last quarter was a case in point with consumer spending picking up while confidence plummeted.”
More generally, Weidensteiner said studying the “tremendously large” U.S. economy is best done with a bird’s-eye view, which doesn’t require being on the ground.
“You can’t see the U.S. economy in any case, regardless whether you sit in Frankfurt, Germany, or in New York,” he said. “That is somewhat similar to astronomy. To analyze the celestial movements of Jupiter, you don’t have to take residence on that planet.”