Lloyds Economic Weekly: Are Economic Growth Forecasts Any Use?

There is a lot of attention being placed on economic growth forecasts at present, not surprisingly since growth is slowing sharply and policy makers, companies and individuals want an idea of what is going to happen next so that they can plan ahead. We have looked at forecasts of economic growth in the UK, US and Germany (as a proxy for the Eurozone) for the last decade. How accurate are economic growth forecasts and does it matter?

There is a lot of attention being placed on economic growth forecasts at present, not surprisingly since growth is slowing sharply and policy makers, companies and individuals want an idea of what is going to happen next so that they can plan ahead. We have looked at forecasts of economic growth in the UK, US and Germany (as a proxy for the Eurozone) for the last decade. The results show that great care should be taken in using, and interpreting, economic growth forecasts. For instance, it is shown that the consensus forecast, which is judged more accurate than the individual forecasts that make it up, is rarely, if ever, actually spot on. In fact, for the period 1999 to 2007 (we estimate 2008), for the three countries assessed in this analysis, the consensus did not accurately predict the actual outcome once. Charts a to c show that forecasters were close some of the time but tended to be wrong all of the time. For the UK, see chart a, forecasters tended to consistently underestimate actual gdp growth (i.e. they are pessimistic), with the outturn being more often above the forecast line than not. For the US, the opposite was true, forecasters tended to keep overestimating growth (i.e. they are optimistic). Germany was a mixture of the US and the UK.

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