Budget Forecasts

Budget forecasts try to anticipate the evolution of the fiscal accounts based on an economic scenario. They are therefore one specific aspect of overall economic forecasting. They range from the rather global to the very detailed, depending on the purpose of the exercise (Section 9.1). Over the short and medium run, budget forecasting mainly involves assessing the sensitivity of receipts and spending to changes in macroeconomic conditions and estimating the impact of new measures (Section 9.2). Over the long run, the focus is more on the evolution of public spending and on the underlying demographic trends (Section 9.3). Budget scenarios can be put together in several ways (Section 9.4), following a fairly general top-down approach or a more detailed bottom-up one (Section 9.5). In practice, these two approaches complement each other. Budget forecasts come with substantial error margins, which is a cause for concern given the large size of the public sector in the overall economy (Section 9.6). One way to analyse and prevent fiscal surprises is to look at the budget from a more analytical angle, bringing in the concepts of structural balance, debt sustainability and rules (Section 9.7).