Long-time ESRI research professor John FitzGerald offered a vivid reflection on the nature of economic forecasting as he officiated at his final quarterly forecast before his imminent retirement from the institute.
Prof FitzGerald said he carried out his first forecast on the Irish economy no less than 42 years ago when he then held a relatively junior post in the department of finance. There has been huge change since then, of course.
“One of the things about doing a forecast, it’s like doing a a jigsaw. But in 1972 it was a jigsaw with 100 pieces with a nice coloured train. It was relatively easy to build your picture.
“Today it’s 1,000 pieces and it’s all sky. And it’s been a constant refrain of the last year: we have loads of information but it is exceptionally difficult to work out from it what’s going on.”
On a day in which the ESRI forecast 5 per cent GDP growth this year, the IMF 3.6 per cent and Ibec 6.1 per cent, Prof FitzGerald said the exact figure in these things was less important than the broader picture.
“It is not the precise number. It is understanding how the economy behaves. It is the picture from the jigsaw, it is not the pieces that are important.
“In the research which we do in building this picture we understand better how the economy works, and it is for that reason the dynamics of what’s going on in the economy lead to our recommendations on fiscal policy.
“We don’t believe that a €2 billion cut is appropriate while we believe that a neutral fiscal policy is appropriate for next year – and that will be reasonably robust even if growth turns out to be a bit higher or a bit lower than we expect.”
Prof FitzGerald said public debate on economic policy was much more limited when he was starting out in the 1970s, adding that the debate now involves a huge number of people and the population at large.
Thanking journalists for their work, Prof FitzGerald acknowledged it was easier for a research institute to deal with challenging questions than for organisations such as the Department of Finance or the Central Bank.
“The last thing you want when you have an official position is an interesting question.”
