Leading indicator...

iPredict runs markets on GDP growth rates stretching out through December 2013. Across all quarters, I'd gone long on the "GDP to grow by MORE than -0.5% in the xxx quarter"; things aren't great, but the rebuild has to push current measured activity up.* We can take the inverse of each of those contracts as being the likelihood of serious recession in that quarter.

Here are the probabilities of GDP growth less than -0.5% in each quarter:

• March 2012: 2%
• June 2012: 5%
• September 2012: 16%
• December 2012: 28%
• March 2013: 26%
• June 2013: 17%
• September 2013: 28%
• December 2013: 31%

So chances of serious recession are higher than one-in-four from December 2012 onwards.

Here are inflation probabilities in each quarter. The first number is the chance of inflation less than 1%; the second, inflation more than 3%. 

• June 2012: 
• Less than 1%: 13%
• More than 3%: 5%
• September 2012:
• Less than 1%: 12%
• More than 3%: 5%
• December 2012:
• Less than 1%: 12%
• More than 3%: 9%
• March 2013:
• Less than 1%: 19%
• More than 3%: 12%
• June 2013: 
• Less than 1%: 20%
• More than 3%: 12%
• September 2013:
• Less than 1%: 20%
• More than 3%: 20%
• December 2013:
• Less than 1%: 20%
• More than 3%: 20%
• March 2014: 
• Less than 1%: 20%
• More than 3%: 20%

A few things worth noting:

• Why is June next year so much less risky than the surrounding quarters?
• If we look at the unemployment forecasts, we move from an 86% chance of unemployment higher than 6% in June 2012 to a 40% chance of that by March 2013. I've heard of jobless recoveries, but low(ish) unemployment recessions?
• The balanced but risky low and high inflation profile for the quarters further out says to me that traders expect the Reserve Bank to have a tough job ahead but not to be more likely to err one way or the other.
• I think those recession odds are a bit on the high side. But I'm sufficiently exposed on those markets that I'm not keen to take on more contracts.

* I'm not saying that earthquakes are good for the economy. I am saying the reconstruction after massive wealth destruction has to show up in the stats.