One of the enduring mysteries of the last month has been how fourth quarter GDP could have been falling faster in Europe than in the United States. Now we have an answer: our first GDP estimates were way too optimistic. The revised estimates now put the annualized rate of decline in the fourth quarter at 6.2%, rather than the 3.8% initially predicted. That's roughly in line with the decline in Europe and the UK, though Japan still has a commanding lead in the race to the bottom.
This points up what I was complaining about with yesterday's post. Obama's budget projections seem little better than random guesses--well, not random, because the errors all go one way:
The administration predicted that the overall economy, as measured by the gross domestic product, will shrink by 1.2 percent this year but will grow by a solid 3.2 percent in 2010. That growth would be followed by even stronger increases of 4 percent in 2011, 4.6 percent in 2012 and 4.2 percent in 2013.
By contrast, the consensus of forecasters surveyed by Blue Chip Economic Indicators in February predicted that the GDP will fall by a larger 1.9 percent this year and then increase at weaker rates of 2.1 percent in 2010, 2.9 percent in 2011 and 2012 and 2.8 percent in 2013.
Nariman Behravesh, chief economist at IHS Global Insight, a major private forecasting firm, called the administration's forecasts "way too optimistic" and said it could represent a return to the overly optimistic forecasts of previous administrations confronted by surging budget deficits.
"They used to joke during the Reagan years that the highest ranking woman in the administration was Rosy Scenario," he said. "We may be seeing a return of Rosy Scenario."
If you take Ken Rogoff seriously, even that's far too optimistic; he says that the decline after a financial crisis generally lasts about two years, which means that growth won't resume until 2011. The current deficit is stunning, but supposed to be temporary--that's presumably why Obama can ignore the deficits dedicated to stimulus and still propose hefty increases in government programs. That's looking less likely by the day.