Economic forecasts often miss the mark, yet governments still rely on them
Forecasters rarely get it right, says a social democratic-leaning think tank.
A recent report from the Kalevi Sorsa Foundation reveals that economic forecasts are often inaccurate, despite their continued influence on government policy. The social democratic think tank argues that the link between forecasts and policy decisions is too close. Executive director Lauri Finér explains that economic forecasts are mostly right by chance.
To reach this conclusion, the foundation assessed GDP growth predictions from seven forecasting organizations. Their study shows that all forecasters were off by about one percentage point when predicting the current year's growth. The Ministry of Finance has a history of overestimating growth, which could lead to excessive budget cuts.
The report also highlights how forecast methods are clouded by past economic trends and the subjective interpretations of economists. They suggest policymakers rely less on forecasts and adjust decisions as new data becomes available. Lastly, the foundation urges forecasting institutions to be more transparent about their methods.
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