has reached its pre - crisis peak, but it took three years to do so. in the united kingdom and the major continental economies, levels of real gdp remain well below their peaks of three or so years ago. in some other cases in europe the declines are larger and, in fact, are continuing. in all these cases the level of output remains well below what policy - makers would regard as their respective economies ’ “ potential ” level. a corollary of that is the rate of unemployment in most cases remains unusually high after a year or more of recovery. this slowness of initial recovery is of course related to the nature of the downturn, which differed from most of the post - war business cycles in that it was characterised by serious and widespread financial distress. history shows that recoveries from downturns associated with banking crises and collapsed asset booms are, more often than not, drawn - out affairs. really we need look no further than japan ’ s experience over the past two decades to see this, but in fact it is well established by a great deal of research. moreover, while banking systems are in the process of regaining health, that process is not yet complete. nor is it clear that households are yet finished the process of reducing their leverage. bis central bankers ’ speeches output and unemployment real gdp percentage change from pre - crisis peak unemployment rate percentage point change from pre - crisis trough north atlantic canada 1. 2 1. 9 united states 0. 0 4. 5 euro area −2. 9 2. 7 germany −1. 4 −0. 6 france −1. 6 2. 0 spain −4. 3 12. 5 ireland −12. 8 9. 3 united kingdom −4. 6 2. 7 china * 23. 2 – india * 20. 9 – east asia * * 8. 0 0. 5 south korea 6. 2 0. 6 australia 4. 4 1. 1 new zealand −1. 8 3. 4 japan −4. 1 1. 3 asia pacific * quarterly gdp did not contract during the global downturn ; percentage change in gdp is from the quarter preceding a marked slowing in output growth * * excluding china and japan ; gdp aggregated at market exchange rates ; unemployment rate also excludes indonesia, malaysia, the philippines and thailand sources : abs ; ceic ; rba ; thomson reuters there are now some other factors that may impede the recovery. one of them is the delicate state of government budgets, which leaves many of

glenn stevens : better than a coin toss? the thankless task of economic forecasting1 address by mr glenn stevens, deputy governor of the reserve bank of australia, to the economic society of victoria and the australian industry group “ economic focus - australia ’ s prospects ”, melbourne, 17 august 2004. the references for the speech can be found on the reserve bank of australia ’ s website. * * * one of my best forecasts was made by accident. in mid 1999, at one of the regular parliamentary hearings we have each six months, i was asked about the prospects for the rate of unemployment, which at the time had been fluctuating around 7½ per cent for several months. 2 my answer was that unemployment would fall to ‘ the low sevens, 7 per cent, something like that ’ by the end of that year. a decline of up to half a percentage point in half a year was, i thought, a reasonably bold forecast ; i didn ’ t think it was likely to go below 7 per cent at that stage. but the hansard reporters recorded my words as ‘ below 7 ’, not ‘ the low sevens ’. hence i was recorded as in effect saying that the unemployment rate would decline quite quickly, and before long have a six before the decimal point for the first time in about a decade. i was worried at the time that this seemed much too bold, but the unemployment rate did indeed fall below 7 per cent around the end of 1999. hence i am happy to have that forecast on the record, even though i didn ’ t actually intend to make it. perhaps that says that chance plays as big a role in forecasting as it seems to in many other areas of life. these days i am more of a consumer of economic forecasts than a producer of them, and while i suppose a former forecaster never entirely loses interest in the forecasting process, it is in the capacity of user that i have come here today. hence i do not propose to make any forecasts - there are presumably more than enough to choose from as a result of the conference. i will rather offer a few observations about the general processes of forming and using forecasts. making economic forecasts remains an occupational necessity, but something of a chore, for many economists including those giving policy advice. for those receiving advice and charged with the responsibility of helping to make decisions, key issues remain deciding how much to stake on a particular view of the outlook, and how to think about