Goldman Sachs cannot see the future
We know that Goldman Sachs is extremely good at making money for its bankers. But is it any good at economic forecasting? To judge by the frequency that the Wall Street bank’s analysts appear in the media and the ultra-respectful manner in which they’re treated by interviewers, one would assume that they’re as good at predicting macroeconomic trends as they are at creaming off rents from the global economy.
Jim O’Neill (pictured), the head of Goldman Sachs asset management and the man who came up with the BRICS acronym, is on Radio 4 so often that they might as well give him his own show. And Gavyn Davies (himself a former Goldman economist) cites one of the bank’s forecasters approvingly in his latest FT blog post.
But I would argue that Goldman’s forecasting record in recent years has not been particularly impressive. Eighteen months ago the bank’s analysts were very bullish about the prospects of the UK coming out of recession. In December 2009, Goldman forecast that UK growth in 2011 would be an impressive 3.4%.
But a year later that forecast from the bank was quietly reduced to 2.4%. The Office for Budget Responsibility is presently forecasting growth of 1.7% for 2011. And the recent disappointing first quarter results of just 0.5% (mostly a bounce back from weather disruption late last year) put even that outcome in doubt.
This is not to argue that O’Neill and the other Goldman analysts are any worse than any other economic forecasters. And the bank can legitimately claim that its forecast in late 2009 for 2010 growth (1.9%) was pretty close to the outcome (1.7%).
But the point is that the economists who work for the fabled vampire squid have no special powers of prescience denied to others. They are not infallible – and should certainly not be treated as such by journalists.Tagged in: forecast, gavyn davies, goldman sachs, Jim O'Neill
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