The performance of the Eurosystem/ECB staff macroeconomic projections since the financial crisis

This article evaluates the performance of the Eurosystem/ ECB staff macroeconomic projections for the euro area in the context of the elevated macroeconomic volatility and uncertainty that has prevailed since the financial crisis. It finds that there has been considerable variability in projection errors over time. With regard to real GDP growth projections, errors that were substantial during the sovereign debt crisis have become more limited in recent years. As for headline inflation, unexpected fluctuations in oil prices – which in the staff macroeconomic projections are assumed to follow the path of oil price futures – played a dominant role in explaining the errors, as was the case during the pre-crisis years. On the other hand, HICP inflation excluding energy and food has been persistently overprojected since 2013. While these projection errors can also partly be attributed to errors in the conditioning technical assumptions, other factors (such as modelling errors, changes in economic relationships or judgement) have also played a key role at different points in time. The forecast performance of the Eurosystem/ECB staff macroeconomic projections has been broadly similar to that of other international institutions and of private sector forecasters, suggesting that projection errors have been mainly driven by common elements. These may include economic shocks unforeseeable to any forecaster and developments that have become more prominent since the financial crisis, including, among other things, structural reforms, changes in the relationship between slack and prices, globalisation and digitalisation. JEL Classification: C53, E37, E58