Beware the naysayers

THERE’S A well-known quip that economists have successfully predicted nine of the past five recessions. Economists are not alone. Many of the world’s largest banks, commentators and successful investors failed to call the world economy correctly in 2012 and missed out on some decent investment returns.

As we start 2013, we should be alert to the fact that we will be warned of all sorts of things that are going to go wrong in the year ahead. Some of these warnings will be plain wrong and many of the worries just won’t eventuate. What didn’t happen in 2012? Despite grave warnings throughout the year, we didn’t get a European breakup with Greece being sent off to the wilderness. The United States economy did not fall into recession, the Federal Reserve’s money printing did not lead to massive inflation, and the fiscal cliff was quickly sorted with hardly a political murmur. China did not have a hard landing, achieving instead an acceptable rate of economic growth consistent with the government’s full-year target. Middle Eastern ructions did not spill over to other countries and there was no ‘‘throwing the toys out’’ by any of the Asian nations wanting to protect themselves from the ailing US and European economies. Overall, things were nowhere near as bad as the naysayers would have had us believe. What did happen in 2012? Global economic growth continued. The European Central Bank and the Federal Reserve combined efforts to protect the world from harm. Both the ECB and the Fed wrote blank cheques aimed at avoiding the deflation and depression of the 1930s. Consequently, Europe muddled along and looks set to muddle along for another year (which is OK), and the US economy grew, with the household and corporate sectors ending the year in good shape. Greece defaulted twice, but the world coped. Australasian stocks and bonds were highly sought after, which kept our currencies high. Markets were volatile and headlines scary, but investors who ignored Armageddon warnings had a pretty good year. What might happen in 2013? Given the sheer luck required to get predictions right, I tend not to make them. But there is enough weight of evidence to suggest some themes that will play out in 2013. Global economic growth will continue; inflation will remain relatively low as will interest rates; there will be grumbles about politicians and their policies but our government leaders will basically get it right and we will finish the year in better shape than we started. Corporate profitability will remain, households will continue to reduce debt but they’ll spend too. 2013 is not going to be a gangbuster year, but it will nevertheless be a good one. Carmel Fisher is managing director of Fisher Funds, an investment manager and KiwiSaver provider.