Right now, it's quite entertaining to follow GDP growth projections in the press. Never before have they been revised so many times in the space of just a few months. Even The Economist has repeatedly become confused and quoted one set of growth projections in an article, and a totally different set of growth projections in the statistics section (courtesy of The Economist's own Intelligence Unit) at the end of the same issue.
Anyway, it seems to me that the current crisis has been severely underestimated for a very long time, but lately, the doomsday prophets seem to be going overboard: A few weeks ago, some analyst was forecasting -10 % growth for Taiwan and Singapore. And this week, Deutsche Bank's Norbert Walter revised his Germany forecast from "could be as bad as -4 %" to "we have to be quite lucky to do no worse than -5 %".
I beg to differ. Things are certainly bad, and it will take time for them to get better. But I am quite confident that Taiwan will not contract by 10 %, and Germany will not contract by 5 % this year. Q1 2009 should still be horrible, and there should be contraction for the rest of the year and possibly 2010 as well, but all sorts of self-stabilising forces are kicking in by now, not least the various fiscal stimuli. So while the minus signs should remain, the numbers after the minus signs should gradually become a bit smaller.
My personal prediction for Germany:
It won't be much worse than -3 %.
Funny somehow: Half a year ago, "it won't be much worse than -3 %" would have been considered outrageously bleak by just about everyone (except possibly Nouriel Roubini). Now it puts me into the "cautiously optimistic" camp. Who would have thought...
(Post to be revisited one year from now.)