When will the next recession be?

The following paragraph is taken from an article written by economist Roger Martin-Fagg, ┬áhe mentions the major discontinuity of the recent recession and how the financial system works on past models of behavior. This recession tore up all the rule books and therefore there isn’t really any data to base the future model on however, if we take Roger’s view, then at least we have the next five years to get our heads down and ┬ámake some money!

The big forecasting models take time series data, smooth it, and then extrapolate into the future. So the forecast future is a replication of the past. When the future is similar to the past this works well and forecasters can often claim accuracy. However when there is a major discontinuity such as that experienced since 2008, we have to start again from base zero. This is because a discontinuity changes rules, behaviours and relative prices. For example if you told a Brit in 1980 that in 2010 base rate would be 0.5%, he or she would consider you were bonkers! My view is base zero was 2013. We typically enjoy a 7 year cycle. We have five good growth years ahead. I think you should pay no attention to those who say the next recession will begin next year, caused by rising interest rates.

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