• Forecasting
  • CFO.com | US

OECD Admits It Flubbed Growth Forecasts

The Organization for Economic Cooperation and Development says it overestimated economic growth worldwide in the years following the financial crisis.

The Organization for Economic Cooperation and Development openly admitted on Tuesday that it proved to be a lousy forecaster in the years during and following the 2008 financial crisis. The Paris-based institute said that it didn’t expect the 2008 crisis to so severely affect world economies, and that it misjudged how much the economic and banking setbacks in one country would affect others.

According to a story in The Wall Street Journal, after reviewing its performance between 2007 and 2012, the OECD said that during those years the forecasts it published every May for the next year’s growth were 1.4 percentage points higher on average than the actual outcome. The forecasts for euro-zone member countries missed the mark by the widest margin.

“Forecast errors were larger in the economies that are most open, in terms of trade and finance, suggesting that globalisation has increased exposure to external shocks and made countries more connected than in the past,” the OECD said in a statement. “Errors in economic projections were also larger in countries with the most stringent pre-crisis labour and product market regulations, suggesting weaker resilience than in more deregulated economies.”

The OECD said it needs to give financial factors more weight in its economic models. During an event in London Tuesday, OECD Chief Economist Pier Carlo Padoan said, “The repeated deepening of the euro area sovereign debt crisis took us by surprise, because of the stronger-than-expected feedback between banking and sovereign weaknesses, and this influenced our over-estimation of projected growth during the early stages of the recovery.”

Padoan added that the OECD has “taken steps to improve short-term forecasting models, construct better indicators of financial conditions and explore the risks around [its] forecasts more systematically.”

Discuss

Your email address will not be published. Required fields are marked *