Chapter 7: Longer Term Growth and Inflation Assessment: Leading Indicators Show Direction

More than one step forward must be taken if overall economic growth is to be forecast not only for the current quarter or the quarter just ended, but for the next three months to about 1½ years. These forecasts are again a little more difficult and associated with much more uncertainty.

Basically, a certain scenario (equal to the base scenario) is calculated for this time horizon under certain assumptions. The economic cycle can play a certain role in this – but it does not have to. For after a few quarters of strong growth, it may well be assumed that a normalisation will occur (due to a lack of skilled workers, a wage increase, higher inflation, among other things). On the other hand, positive sentiment can provide further confidence and even extend the business cycle. In this respect, not too much should be placed on a ‘normal’ business cycle.