The Organization for Economic Co-operation and Development (OECD) has admitted that it was excessively optimistic and made some mistakes in the estimations of the GDP progress of its member states.
In a “post mortem” report that was presented at the LSE in London on Tuesday, the OECD sought to examine its forecasts during and after the financial crisis between 2007 and 2012.
The report’s main findings were:
- GDP growth was overestimated on average across 2007-12, reflecting not only errors at the height of the financial crisis but also errors in the subsequent recovery.
- Forecast errors were larger in countries that are more open to external developments and hence exposed to shocks from other economies.
- Larger forecast errors over 2007-12 have occurred in countries with more stringent pre-crisis labor and product market regulations.
- Growth in the recovery has been weaker relative to predictions in countries in which banks had low capital ratios pre-crisis.
- Stronger projected fiscal consolidation has been associated with weaker-than-projected growth, but this conclusion holds only in some years, and only when Greece is included. The repeated assumption that the euro crisis would dissipate over time, and that sovereign bond yield differentials would narrow, has been a more important source of error.
- The forecasting experience in the wake of the crisis has led to a number of changes in forecasting procedures and communication – in the OECD as well as in other forecasting institutions.
The full report is available here.
