Business Cycle 2015: Forecast and Reality

The Ifo Institute has critically assessed the quality of its own business cycle analysis for many years. This article discusses the differences that emerged between Ifo’s forecasts and reality in 2015. It also examines the quality of Ifo’s forecasts on a long-term average. The Ifo Institute’s forecasts of average growth rates of real GDP in 2015 were based on slightly overly pessimistic assumptions of overall framework conditions, and were thus not optimistic enough. In December 2014 an average rate of change of 1.5% of GDP was forecast, while the first provisional official estimate of GDP for 2015 was 1.7%. The absolute forecasting error of 0.2 percentage points was thus clearly within the final revision margin for real GDP set out by the German Federal Statistics Office (average absolute revision: 0.42). The Ifo Institute’s long-term forecasting record is also good. It emerges that the mid-term forecasting error in the period from 1992 to 2015 did not vary significantly from zero, and Ifo’s forecasts are also efficient. Moreover, there has been no deterioration in its accuracy over the past twelve years, which, on the contrary, improved over the period of 1992 to 2003.