Commission Forecasts Watch – March 2014 Edition
Last week the Commission published its second flash estimates for 2013 GDP growth. This allows to update an earlier exercise I had made on forecast errors by the Commission (around this time last year). This is what I had noticed at the time:
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.
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. November!
I had concluded that there was a likely political bias in the Commission’s forecasts, with excessive optimism used to deflect criticisms of austerity. I also ventured in a quick and dirty estimate of the range for GDP growth in 2013, based on the Commission’s past errors. Actual growth turned out to be -0.5%, i.e. at the lower bound of my range (and below the forecast of the time by the Commission, that was -0.3%). I must nevertheless confess that my range was rather wide…
But what about this year? I updated the figures from last year. First look at forecasts versus realizations since 2007:
Well, this time the Commission seems to have done a rather good job. The Spring forecast for the current year (the red line) in 2013 is -0.4%, equal to the Fall one (yellow), and only slightly above the actual realization of -0.5%. What this year confirms, on the other hand, is that year t-1 forecasts (the two blue lines) are of very limited utility (to use an euphemism). Finally here is the updated forecast error graph:
We are back to errors similar in size to those of 2011. My interpretation, that I admit stretches facts a little, is that last year’s forecasts (both Spring and Fall) really were, as I had hinted at the time, a political attempt to justify austerity and to trigger the confidence fairy. The debate on austerity this year has waned, and by magic the Commission has gone back to negligible errors. Stretched interpretation, I repeat, but still…
Ok then. I just need to provide my own estimate for 2014. Using very sophisticated techniques that, if used by one of my students would mean immediate fail, my Commission-Forecast-Error-Based crystal ball gives me a forecasted GDP growth for 2014 of +0.55% (the dashed line in the first figure). The Commission forecasts 1.1%, I will update it after the publication of the Spring forecasts, in just a few weeks.