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'IMF's growth f'casts overly optimistic'

The WEO is an important source of forecasts for global economic activity covering 178 countries in seven regions.

india Updated: Mar 16, 2006 12:16 IST
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The International Monetary Fund's widely followed World Economic Outlook (WEO) tends to be overly optimistic on growth, according to an IMF economist who studied the accuracy of the figures.

The WEO is an important source of forecasts for global economic activity covering 178 countries in seven regions. It is published twice a year in April and September just ahead of meetings of world finance ministers.

"WEO forecasts for real GDP (gross domestic product) growth display a tendency for systematic over-prediction -- that is, predicted growth, on average, tends to exceed actual growth," economist Allan Timmermann wrote in an IMF working paper.

Timmermann said his research showed the WEO was particularly optimistic on gross domestic product forecasts for the following year, particularly for countries with IMF-backed loan programs.

"This tendency for over-prediction of growth performance is also persistent over time," he said. "The evidence suggests that WEO forecasts for some countries could be improved if more attention were paid to important international linkages."

Timmermann noted, however, that his research found the WEO underestimated inflation forecasts for the following year for many African, Central and Eastern European, and Western Hemisphere countries.

In contrast, there appeared to be fewer problems in the WEO's forecasts for current account balances as a percentage of GDP, he said.

Timmermann said WEO forecasts for the Group of Seven industrial nations were significantly over-optimistic during 1991 and 2003. In contrast, US growth was underestimated after 1990 although not significantly.

Still, Timmermann said the WEO's projections were comparably similar, and at times more accurate, than those published by Consensus Economics, an international economic survey organization that polls more than 700 economists every month on indicators such as growth inflation, interest rates and exchange rates.