Are We More Accurate? Revisiting the European Commission’s Macroeconomic Forecasts

In this paper, we present the results of the comprehensive assessment of the accuracy of European Economic Forecasts. High-quality macroeconomic forecasts are a prerequisite for economic surveillance of the European Commission. We evaluate forecasts for three key variables – GDP growth, consumer price inflation and the general government budget balance – on two forecast horizons – current year and oneyear-ahead – over the period 2000-2017. Pointing to some improvement in the accuracy recently, the forecasts continue to show a satisfactory track record which does not differ much from the forecast track records of other international institutions. The Commission’s forecasts present largely an unbiased outlook for near term economic developments, accurately foresee an acceleration and deceleration in the underlying variables and mostly contain information beyond a naïve forecast. There is room for improvement, however. The forecasts appear to be prone to repeating errors, which to some extent seems to be related to an overly conservative assessment of the business cycle dynamics and to a lesser extent to errors in technical assumptions.