Fact or forecast

Fact or forecast

Expectations and reality do not always match, so stay on watch

In August, China finally surpassed Japan to become the world's second-largest economy.

But wait ... didn't that already happen? We often hear in debates and in the news that China is the world's second-largest economy, behind only the US and catching up fast. The expectation was treated as history; the forecast a certain fact.

It does seem odd now in retrospect that what we have been assuming for the past two years only happened last month. What is even odder is that we have been making decisions based on this assertion.

Why should any of this matter?

It may seem harmless now that we know the forecast is true. However, at the time it wasn't - it was merely an expectation. And the future is always uncertain.

China might have seemed to be surpassing Japan last year, but the financial crises might just as well have brought exports down so badly that our country would undergo a recession. That "might" is significant enough for us to draw the line between fact and forecast.

The problem with treating that "might" as a "will" is that we would end up with more and more inaccurate forecasts. Expectations are usually built on facts.

We expected China would become the world's No 2 economy because of some astounding economic indicators.

Treating an expectation as a fact can create a false basis for further expectations. What we might then end up with are speculations that fall victim to the domino effect: when one turns out to be wrong, all the others will fall down with it. An example of this is the real estate bubble. Property prices have been rising in China for some time. The increases in price were triggered by an initial growth in the demand for houses. Because of this, people expected prices to increase. This expectation was treated as a fact, and more people began to buy houses, raising the hopes for further price increases.

Eventually, people begin to forget that it was the demand which drove the prices up. Today if we ask an average person why he would like to buy a house, he will answer "because the prices are going to be higher next week". When in fact, there are many houses that remain "dark" even at night in many of China's major cities.

There should always be a line between forecast and fact. This is not to say that expectations are useless.

Weather bureaus, for example, can at least give us a rough idea of what the weather will be like tomorrow. However, it pays to remain a bit sceptical when we look at these forecasts. The weather man might tell us that it's going to be sunny today, but we should still take a look at the sky before we decide whether or not to bring an umbrella.



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