Future Studies — How to Predict the Future
In the past five years, many of my economic forecasts have come true. If it is just one or two forecasts that are accurate, which can be achieved by chance, but if all the six predictions come true, it is extremely unlikely that it is purely by luck.
The following is a summary of the six forecasts: global recession; construction cost declines; property price falls; office vacancy rate rise; gold price rise; and global deflation.
The first is the prediction of the global economic recession. It was first warned that Hong Kong’s economy might enter a recession in five years when Ming Pao wrote an article in 2016 and spoke at the Legislative Council in 2017 (Yiu, 2020a), and finally this year Hong Kong became one of the world’s first economies in recession.
It is a pity that the government officials and most of the people at that time did not believe that Hong Kong’s economy would fall into a recession, as the economic growths was robust in the past decade, so they spent to build many expensive infrastructure projects and increased budgets substantially on various fronts. In fact, I have raised the concern on the increasing construction cost when I spoke in the Legislative Council. It is unwise to increase the expenditure on infrastructure projects of no urgency when the construction cost is too high, as the same project can be built later at a cheaper price, and it can also be used to boost the economy and improve employment during economic recession. However, people usually believe that construction cost will only be more and more expensive, and so it will only cost more if it is built later. Many of these unreasonably expensive projects were approved at the Council without giving sufficient time to discuss and analyse.
Facts speak louder than words! Construction cost index shows that construction cost has begun falling from the highest level since 2018 (that is, after I left the Legislative Council) (Yiu, 2020b). For example, the Building Works Tender Price Index compiled by the Architectural Services Department, i.e. BWTPI has fallen from a recent high of 1783 in 2016Q3 to 1625 in 2020Q4, which is a 9% drop from the peak. In other words, if we can delay the $300 billion expenditure on building works in the past 4 years for a few years, it can save almost $27 billion!
In addition, I have repeatedly raised warnings about population shrinkage (Yiu, 2020c), rising office vacancy rates (Yiu, 2020d), and possible fall in property prices (Yiu, 2020e) in the Legislative Council, advising officials not to overestimate the growth in demand. All these predictions come true today. The vacancy rate of Grade A office buildings has been increasing to a new high of 11.8% in 16 years (RVD, 2021). Furthermore, the rental index of Grade A office has fallen since February 2020, and the year-on-year change in office rental index in 2020 was 7.5% (RVD, 2021).
Finally, there are two recent forecasts, including the forecast of the rise in the price of gold a year ago. The price of gold has risen by as much as 50% in the two years! (Yiu, 2020f) This prediction is also based on my real interest rate theory which has been used to predict housing prices (Yiu, 2020e). In fact, Hong Kong has only experienced three periods of property price declines in the past 14 years, namely in 2009, 2016 and 2016. This is the magic of empirical science. Future study cannot be based on luck or making more predictions to increase the chance of winning, it has to rely on the science methods to carry out vigorous empirical tests. In line with Milton Friedman’s general criteria for hypothesis appraisal, “the only relevant test of the validity of a hypothesis is comparison of its predictions with experience” (Friedman, 1953, pp.14–15).
The last item is a recent forecast, but it is also the fastest deflation in the world including Hong Kong (Yiu, 2020g). This is one of my “Post-COVID” articles, and the global deflation came true in just a few months after my article was published, which empirically refutes most of the reviews that predict a high inflation. Even though many governments have cut interest rate to save the economy and the Federal Reserve of the US has changed the target of 2% inflation from the upper limit to the average, but due to the delay in the recovery of the real economy, when the unemployment rate is still high, income is greatly reduced, it will take some time to turn deflation into inflation.
I have also made a relatively long-term forecast, and it will take a much longer time to know whether it comes true or not. It is about my presentation at a seminar in May 2015 on the population size forecast of Hong Kong. My prediction was that the population will begin to shrink around 2037 (Figure 1). In fact, the Census and Statistics Department subsequently announced an estimate of a declining Hong Kong population in 2046, which is roughly the same as my prediction. Recently, due to the increase in the number of deaths due to the epidemic, and the reduction in the number of migrants and new births, the latest population growth rate has appeared to be levelling off or even falling (Yiu, 2020h).
References
Friedman, M. (1953) The Methodology of Positive Economics, In Essays in Positive Economics, Chicago: University of Chicago Press. https://www.sfu.ca/~dandolfa/friedman-1966.pdf
RVD (2021) Property Statistics, Rating and Valuation Department, Hong Kong Government.
Yiu, C.Y. (2020a) The Post-COVID Global Economy 1 — Recession and Deflation, Medium, April 11. https://medium.com/discourse/the-post-covid-global-economy-1-recession-and-deflation-6440bda6fae1 [See also Yiu, C.Y. (2020a1) An Update of my Forecast of Global Recession, Medium, June 6. https://ecyy.medium.com/an-update-of-my-forecast-of-global-recession-4ba2e0e1cb65, and Yiu, C.Y. (2020a1) I warned of an impending economic recession in the era when the Hong Kong stock market surpassed the highest position in history! ? Vocus, June 19th for a Chinese translation. https://vocus.cc/hk_real_estate_econ/5eeb2ffdfd897800011a881e]
Yiu, C.Y. (2020b, Chinese) City resilience comes from accurate prediction 2-Construction Cost, Vocus, April 30. https://vocus.cc/infrastructure/5eaa22aefd897800019b59b0
Yiu, C.Y. (2020c, Chinese) Post-COVID Economy 6: Population Shrinking, Vocus, August 25. https://vocus.cc/eyanalysispoliecon/5f445e19fd89780001c66938
Yiu, C.Y. (2020d, Chinese) City resilience comes from accurate prediction 3-Real estate price, Vocus, May 1st. https://vocus.cc/hk_real_estate_econ/5eabe4d7fd897800019d804e
Yiu, C.Y. (2020e) Reviewing the Predictability of the Past 3 Falls of Hong Kong Housing Prices, Medium, June 14. https://ecyy.medium.com/reviewing-the-predictability-of-the-past-3-falls-of-hong-kong-housing-prices-caad65ef22dc [see also Yiu, C.Y. (2020e1) summarizes the forecasts of the past three property price declines, Vocus, June 14 for a Chinese translation. https://vocus.cc/hk_real_estate_econ/5ee4a5affd89780001039e9e]
Yiu, C.Y. (2020f) Gold Price Goes Up Almost 50% since 2018, Medium, June 23, https://ecyy.medium.com/gold-price-goes-up-almost-50-since-2018-49fcd85aed1f [see Yiu, C.Y. (2020f1) The price of gold has risen by about 50% since mid-2018, Vocus, June 24 for a Chinese translation. https://vocus.cc/hk_real_estate_econ/5ef30f7bfd8978000117cd54]
Yiu, C.Y. (2020g) Prediction of Deflation in Hong Kong Comes True, Medium, August 22. https://medium.com/discourse/the-post-covid-global-economy-1-recession-and-deflation-6440bda6fae1 [see also Yiu, C.Y. (2020g1) Deflation Prophecy Comes True, Vocus, August 21 for a Chinese translation. https://vocus.cc/hk_real_estate_econ/5f3f3be4fd89780001272ad5]
Yiu, C.Y. (2020h) Hong Kong’s population fell for the first time in eighteen years, Vocus, September 10. https://vocus.cc/hk_real_estate_econ/5f588f3afd89780001da7ed8
