How do economists predict a recession?
You all hear that we’re headed for a recession. And we are.
Recessions happen every 8-10 or so historically, but that doesn’t mean we know exactly when we’ll get one. And guess what? Economists don’t exactly know either. So they have a system.
Economists look at economic fundamentals and what geopolitical and economic events are expected to happen in the future to predict the probability of a recession at a certain date. Whoa. Complicated.
Well, before we get into that, let’s use a a real life analogy. Your friend says, ‘hey, let’s meet up for drinks or dinner in a week.’
Based on this, there’s a strong likelihood you will meet your buddy this week. Let’s say it’s Monday. Since there are no solid plans yet, there’s a 10% likelihood that you’ll meet Tuesday and 20% chance it’s Wednesday. But you know your friend is flakey, so while there’s a good chance you meet Friday, it’s more like 70% than 90%.
To see how this is very much like the way economists predict recession, watch the quick video above.