ALTHOUGH economics was derided by the historian Thomas Carlyle as the ‘dismal science’, it is optimism that infects the profession — and it runs so deep that economists rarely see recessions coming.

Even in early 2008, when markets were crashing, a survey of leading forecasters by the Philadelphia branch of the Federal Reserve showed that none predicted negative growth for the US that year.

Now, despite evidence that the world economy is near to another recession, a similar survey shows that not one of the 40 leading economists believes there will be a US downturn this year.

Clearly, economists are not listening to the markets, which are more worried. In 1966, the Nobel-winning economist Paul Samuelson quipped that the stock market had ‘predicted nine out of the last five recessions’, and writers still quote him to disparage the predictive power of markets.

There are no certainties but the collective wisdom of markets has proven more reliable than the thinking of economists

Samuelson, though, was no more impressed by his fellow economists. The analysis company Ned Davis Research has shown that ‘economists, as a consensus, called exactly none’ of the last seven recessions, dating back to 1970.

To see how well markets anticipate trouble for the economy, I looked at data for the past 50 years for periods when Wall Street’s Standard & Poor’s 500 index fell from its most recent peak by 10, 15 or 20pc. It turned out that the market declined by at least 15pc from its peak typically six months before the seven US recessions. In short, the market has a habit of sniffing out trouble in a timely manner.

As Samuelson suggested, it is true that the stock market also sends false signals. The S&P 500 has suffered 15pc declines 12 times since 1965, so there were five times when a sharp decline was not followed by a recession, most recently in 2011.

All told, however, a sharp decline in the S&P 500 has signalled a recession nearly 60pc of the time. By contrast, the consensus view of economists has an accuracy rate of zero per cent.

Twice this year, the S&P has approached the 1,800 level, which would represent a 15pc decline, then recovered. If it falls below that mark, it would suggest a probability of nearly 60pc that the US economy is in or is entering a recession.

The global picture is similar. Because there are always fast-growing nations somewhere, the global economy rarely shrinks as a whole. Typically, global recessions begin when growth falls below 2pc, which has happened five times in the past 50 years — and the markets anticipated each one.

I looked at the MSCI World Index to 1970, when its records began. The market fell by at least a fifth from its recent peak eight times; before all five global recessions and on three other occasions. That would infer 63pc accuracy.

From its peak last year, the MSCI World Index reached a maximum decline of 19pc on February 11, then recovered.

If the index drops again and breaches the 20pc threshold soon, the message will be clear: there is a better than even chance of a global recession this year.

There are no certainties but the collective wisdom of markets has proven more reliable than the thinking of economists.

With real money at risk, investors seem to be highly alert to signs of imminent recessions, while economists seem to be motivated by a fear of bucking the professional consensus. Their models are not built to capture dramatic shifts and their forecasts tend to move in tiny steps.

They rarely risk a sharp move into negative territory. The cheerful science would probably do better by listening to the markets.

The writer is head of emerging markets and global macro at Morgan Stanley Investment Manage­ment.

Published in Dawn, Business & Finance weekly, March 7th, 2016