If you could predict the economic cycle with any accuracy, you probably wouldn't be reading this. You would be on your Caribbean island enjoying your third massage of the day. Even experts and governments get it wrong most of the time.
However, the US-based think tank, Economic Cycle Research Institute, has a far stronger track record than most in this area. It successfully predicted the 2001 slowdown in the US, the late 1990s boom and the recession of the early 1990s.
When the down turn does come, and it surely will, it probably wonąt be as severe as in the past.
Despite much of the doom and gloom related to consumer spending, ECRI is surprisingly positive about immediate prospects for the UK economy. "Although the growth rate is currently close to a twelve-year low in this country, UK economic growth is likely to improve in the months ahead," predicts ECRI managing director Lakshman Achuthan.
The charts below show ECRI's analysis of the UK economy since 1974, with periods of slowdown highlighted in background colour. The top line is a predictive index of indicators such as money supply, interest rates, inflation, expectations, profitability and productivity. The fact that this index is relatively high at the moment suggests that we will experience growth for the near future.
The bottom line is an index of actual – as opposed to anticipated – economic performance. It clearly shows the periods of downturn over the past three decades. But when the downturn does come, and it surely will, it probably won't be as severe as in the past, predicts Achuthan. This he puts down to the changing nature of the economy and better economic management.
"The business cycle will never disappear," says Achuthan. "However, it used to be partially the result of industrial investment cycles, which are much less significant because we live in a service economy. And we are now much more adept at managing it than we used to be, so we expect it to be less volatile in the foreseeable future."
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