CFOs And Forecasters Differ On 2019 Recession

CFOs and Forecasters - Ignore Them & Most Of The Financial Press

It’s interesting how forecasts for recessions work. Every time there is a volatile market or economic data weakens, the media asks a perma bear, who has been predicting doom for years, to do an interview.

The bearish prognosticator states the bearish case with more conviction than usual because of the fear in the markets. Sometimes the bears are correct, but most of the time the headlines scare investors out of winning positions.

The same thing happens with bullish prognosticators except stocks go up most of the time, so they are correct more often. You need to have your own process to understand why markets move the way they do.

Technical analysis and the economic data provide the stone cold truth. They let you ignore the prognosticators who never change their mind.

To be clear, I’m not saying you should never listen to anyone. It’s just that the media often promotes commentators who have an agenda rather than those who change their minds.

I’m discussing this topic because currently, most economists aren’t predicting a recession, but most CFOs see one coming by 2020.

(Click on image to enlarge)

As you can see from the chart above, most economists never predict a recession.

Peaks in the probability of a decline in real GDP in the next 4 quarters usually come too early. One exception is the peak in Q4 2008 which occurred after the financial crisis started. Q4 2008 was the worst part of the crisis. Currently, the percentage is at a cycle high.

This could explain why there are many recession predictions in the media. Another reason these predictions are popular is because stocks have fallen. Obviously, predicting a recession after stocks have fallen doesn’t do much good for traders.

CFOs and Forecasters - Global CFOs Are Negative On The 2019 & 2020 Economy

On the other side of the coin, CFOs are very bearish.

In December 2018, 48.6% of CFOs stated they think the American economy will be in a recession by the end of 2019. 82% think a recession will happen by the end of 2020. 67% of European CFOs see a recession by the end of 2019. They might be too optimistic as Germany and Italy are likely in a recession now.

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