Martin Wolf: Readiness should be all in this new year
For the world economy, a happy new year is now expected. But forecasters usually assume that recent trends will continue, modified where appropriate by reversion to a longer term mean. It is more useful, however, to ask what might change. When everything is going quite well, as now, that mostly means asking what could go wrong and, more important, whether the risks of its doing so are adequately priced. The answer is: they are not.
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Start with the expectations. According to December’s Consensus Economics, the average growth forecasts for this year are: 3.4 per cent for the US; 1.9 per cent for the eurozone (with France on 1.9 per cent, Germany on 1.5 per cent and Italy on 1.3 per cent); 2.1 per cent for the UK; 2.0 per cent for Japan; 4.0 per cent for Latin America (with Brazil on 3.4 per cent); 5.3 per cent for eastern Europe (with Russia on 5.7 per cent); 8.5 per cent for China; and 7 per cent for India (in fiscal year 2006). The story is clear: the upswing broadens; the US continues to outperform other big developed countries; Germany and Italy remain laggards; Latin America disappoints; and the Asian giants grow fastest.
So what might go wrong? The dangers fall into three categories: non-economic, economic and, in the case of energy, a blend of the two.
The biggest non-economic risks are those relating to security, as Harvard’s Ken Rogoff pointed out in yesterday’s FT. Consider the possibility of a nuclear device found
