Home > EMU Crisis, Growth > The Spring is Nice, but then Comes the Fall

The Spring is Nice, but then Comes the Fall

February 22, 2013 Leave a comment Go to comments

The much awaited European Commission Forecasts for 2013-14 are out. What do they say, in a sentence? That the situation is grim, but that the EU is gradually overcoming the headwinds. So that, surprise, surprise, the second half of the year will be better.
I guess we already heard that.  Every Spring forecast depicts a negative situation, and predicts an improvement in the Fall. And every year the Fall turn out as mother nature meant it to be, worse than the Spring.

I made a back-of-the-envelope exercise. The following figure depicts the forecasts error for each year of the Commission’s Eurozone GDP growth estimates from 3 different time horizons. The same year Fall forecast, the same year Spring forecast, and the previous year Fall forecast. To make it clearer, the three bars for say 2012, represent the forecast error of the Fall 2011 forecast (blue), of the Spring 2012 forecast (red), and of the Fall 2012 forecast (yellow).

ForecastErrorFeb22_1

I am not expert enough to judge whether these errors are “large” or “small”. Forecasting is a very difficult exercise, most notably in times of acute crises (the Commission underestimated both the severity of the recession in 2009, and the rebound of 2010). Yet, even a casual observer like me cannot help but notice two things:

  1. The Commission tends to be overly optimistic, and forecasts turn out to be in general higher than actual values. It should not be like this. While I expect a government to inflate a bit the figures, a non-partisan, technocratic body should on average be correct.
  2. Related, it is also surprising that in November of the same year the Commission is still consistently overoptimistic (yellow bar). Let me restate it. This means that in November 2012 the Commission made a mistake on GDP growth for 2012 (and in 2008-09-10-11…). November!

Taken together these two things seem to point to a political use of the Commission’s forecasts. Being overoptimistic, the people in Brussels first try to deflect criticisms of the austerity measures they help impose to most European countries; and second, probably, they hope to trigger the confidence fairy that is supposed to compensate fiscal consolidation and lift the EMU economy from the hole in which it put itself. “Look, things will be better, let’s go out and spend!”.  Vain attempt, if you ask me…

If we take the average error of the past 5 years, and assume that the Commission current forecasts are equally wrong (ok, this is just a game, it really is not rigorous!), we have this:

ForecastErrorFeb22_2

Then I have my own forecast for growth in the EMU for 2013. It ranges from -0.54% to -1.14%. The Commission forecasts -0.3%. We’ll see…

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  1. Carlo
    February 22, 2013 at 4:52 pm

    Very interesting post, but I do not see I can the European Commission be depicted as “a non-partisan, technocratic body”. The Commission is currently headed by a former right-wing head of government who has been elected by a conservative-dominated assembly of European heads of government. before that, it was a left-wing former prime minister, elected by a progressive majority. There is nothing wrong in this, it’s just Europe-wide politics, or better democracy. But its forecasts are not different from any other government’s, expect for the need to balance the partisan (currently conservative) position with intra-European international considerations…

    • February 22, 2013 at 4:54 pm

      Good point! Let’s say then, that is meant to be technocratic, and of course as you rightly point out reality is different. Thanks

  2. May 15, 2013 at 11:29 pm

    Articolo interessante e colgo l’occasione per complimentarmi per questo sito! veramente ben fatto e con tanti articoli utili!

  3. Eclair
    October 14, 2013 at 5:06 pm

    I have recently written about the potential growth estimates underlying the Commission’s “forecast excercises”. You might find this interesting. http://www.intereconomics.eu/archive/year/2013/1/843/

    Best regards

  1. April 4, 2013 at 4:03 pm
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