One of the concepts that used to be taught to first-time students of economics was the Latin phrase ‘ceteris paribus’, which translated into English means ‘all other things being equal’. In other words, an economist could forecast that a change in one variable (low interest rates for example) could affect another variable (prices of houses) as long as other variables (property transfer taxes, for example) that could have an effect remained unchanged.
The use of the expression, in a way, is an admission by economists that their forecasts could prove wrong because there can never be a guarantee in a market economy that all other things will remain equal. If anything, it is quite rare that all other things remain equal and only the variables we are interested in change, thus proving the economic forecasts correct.
It is with this in mind that we should view the forecasts for economic growth for this year, which have already changed. The finance ministry had forecast a growth rate of 4.5 per cent on the assumption that there would be a strong recovery. A couple of days ago, the University of Cyprus Economic Research Centre issued its own growth forecast for the year and it was lower than the ministry’s, at 3.7 per cent. Not a big difference, admittedly, but indicative of the general uncertainty we have to be prepared for.
Can there be any accurate forecast about the growth rate during the pandemic, a time in which nobody knows how the situation will develop? At present most countries are in lockdown, governments are strongly discouraging foreign travel, some are considering closing borders, there is talk of new strains of the virus and the vaccination programmes are moving at a slower pace than was originally anticipated.
There are hundreds of variables that will change and affect economic performance, while nobody can guess how and when they will change. Can anyone safely say when people will feel safe to travel or how fast airlines will increase their flights? These are unknown variables that will have a direct impact on Cyprus tourist arrivals, on which the recovery that would lead to a positive growth rate depends. And who will fund the recovery if the banks are faced with rising NPLs?
We can only hope the economists’ forecasts of growth are proved correct. These, however, are based on so many unknowns – factors beyond our control – in totally unfamiliar conditions, that they could be described as a prayer rather than a reliable forecast.