A Reserve Bank of Australia (RBA) Research Discussion Paper examines the accuracy and characteristics of real Gross Domestic Product (GDP) growth forecasts produced by major international organisations. The paper, titled “Real GDP Forecasts by International Organisations”, studies whether differences exist between forecasts from organisations including the International Monetary Fund, World Bank, European Commission and Organisation for Economic Co-operation and Development. It also evaluates whether these forecasts satisfy standard measures of forecast efficiency.

The research paper was prepared by Martin McCarthy from the RBA, Umberto Collodel from the Central Bank of Malta and Prakash Loungani from Johns Hopkins University. The authors note that the views expressed are their own and do not necessarily represent the views of the RBA or the Central Bank of Malta.

Comparing Forecast Accuracy Across Organisations

The study compares forecasts of annual real GDP growth using a broad dataset covering forecasts from international organisations and private-sector expectations. The research examines forecasts across multiple economies and forecast horizons to assess differences in accuracy.

The authors find that differences in forecast accuracy between organisations are generally limited when measured across individual economies. While one forecaster may record lower forecast errors than another in specific cases, these differences are often not statistically significant.

The findings indicate that no single forecasting organisation consistently produces more accurate GDP growth estimates across the full sample. The paper highlights that forecasting performance can vary depending on the economy, forecast horizon and the period being analysed.

Forecast Efficiency and Forecast Revisions

Beyond accuracy, the research examines whether forecasts efficiently incorporate available information. In economic forecasting literature, a forecast is considered efficient when forecast errors cannot be systematically explained using information available at the time the forecast was produced.

The authors find that many forecasts do not satisfy standard forecast rationality tests at longer horizons. However, the paper notes that this result does not necessarily indicate poor forecasting practices. Instead, it may reflect the methods used by international organisations when preparing their forecasts.

The study identifies patterns including forecasts that may not fully adjust to future developments or revisions that differ from what would be expected under standard statistical assumptions. These outcomes can arise from the complexity of economic forecasting and the assumptions incorporated into forecasting models.

Role of Assumptions and Modal Forecasts

The research explores two possible explanations for why some forecasts do not meet standard rationality tests.

The first relates to conditioning assumptions. International organisations often prepare forecasts based on assumptions about future economic conditions, policies or external factors. These assumptions can influence forecast outcomes and affect how forecasts perform under statistical testing.

The second explanation concerns modal forecasts. A modal forecast represents the outcome considered most likely by the forecaster, while some statistical tests assume forecasts represent an average of all possible outcomes weighted by their probabilities.

The authors find evidence that modal forecasts can differ from mean forecasts assumed in traditional testing frameworks. They note that this difference may explain some forecast characteristics rather than indicating that forecasting methods are ineffective.

Understanding Global Economic Forecasts

The research highlights the challenges involved in producing global GDP forecasts. Economic conditions can change due to unexpected developments, while differences in assumptions and forecasting approaches can influence published estimates.

The paper suggests that evaluating forecasts requires consideration of the methods used, the information available at the time and the purpose of each forecast. Accuracy comparisons alone may not capture all aspects of the forecasting process.

The findings provide insight into how international economic forecasts are produced and the factors that influence forecast performance. The research also contributes to discussions around improving transparency in forecasting methods and assumptions.

What to Watch Next

Future economic forecasting research may continue examining how forecasting organisations incorporate uncertainty, assumptions and changing economic conditions into their projections.

The RBA discussion paper adds to broader research on forecast evaluation by analysing both forecast accuracy and the reasons why forecasts may differ from standard statistical expectations.