An evaluation of the world economic outlook forecasts

This paper conducts a series of statistical tests to evaluate the quality of the World Economic Outlook (WEO) forecasts for a very large cross section of countries, with particular emphasis on the recent recession and recovery.

The paper assesses WEO forecasts by:

• evaluating whether they were unbiased and accurate
• characterising process whereby WEO forecasts get revised as the time to the point of the forecast draws closer
• looking at how forecasts can be improved by combining WEO forecasts with the Consensus forecasts.

The paper further considers how precise the WEO forecasts were when measured against actual outcomes and whether there were simple ways to improve on these forecasts—in particular, whether spillover effects from major economies such as the United States and Germany are accounted for in all forecasts. It looks at how well the WEO forecasts performed during the most recent downturn and recovery, and whether there is evidence of a structural break in the WEO forecasting performance in recent years. It also explores how well the WEO forecasts performed relative to the Consensus forecasts and whether simple combination schemes utilising information on both the WEO and Consensus forecasts could be used to improve on the separate WEO forecasts.

The main findings include:

• the performance of the WEO forecasts is similar to that of the Consensus forecasts
• WEO forecasts for many variables in many countries meet basic quality standards in some, if not all, dimensions
• the paper raises a number of concerns with current forecasting performance.

Recommendations include:

• ensuring that as timely information as possible is used to produce the forecasts by streamlining the process used to produce the WEO forecasts
• implementing a real-time monitoring of forecasting performance
• using bias-adjusted forecasts as guidance
• given the recent improvements inapplicable methodologies to provide quantitative forecasts of risk, it is strongly recommended that the WEO incorporate these advances in the future
• the implications of using conditional forecasts should be considered.