The future is always uncertain. In our main blog (eurout.net) we have explained why economic models almost never predict how the economy will actually perform, even in the fairly-near future. They produce guesses based on necessarily incomplete representations of the economic environment with many inaccuracies in the input data. The resulting computer model is then presented as a highly sophisticated tool for experts to generate reports for whoever needs them.

Take care. Whoever requests a report is likely to have an influence on the choices made that determine the outputs. So the UK Treasury, at the request of the Chancellor, has used its model to predict that households will be worse off by £4,300 on average in 15 years time if we leave the EU. Two key assumptions are that the EU will continue uninterrupted in spite of the shock that Brexit will give it (losing its second-largest economy) and that an independent Britain will lose exiting trade ties while being unable to forge new ones. This is fantastically unlikely. Furthermore, the model takes no account of other quite likely shocks, such as bankruptcy of Greece and others, especially Italy.

We could say more, but not here. You will find more on the limitations of economic models at eurout.net.

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