ECB Economic Bulletin: Projections Generally Broadly in Line With Market- and Survey-Based Forecasts

31 July 2024

By Isabel Teles – FRANKFURT (Econostream) – Despite some errors during the inflation surge of the recent past, the Eurosystem/ECB staff projections have been found overall to be as accurate as other benchmarks, according to the Economic Bulletin pre-release published Wednesday by the European Central Bank.

‘Inflation projections by ECB/Eurosystem staff perform broadly similarly to market and survey-based forecasts, although the latter tend in general to slightly underperform ECB/Eurosystem staff projections, in particular prior to the unprecedented pandemic and post-pandemic shocks’, the authors of the bulletin said.

Considering the unpredictability of the pandemic and of Russia’s war in Ukraine, some autocorrelation of forecast errors ‘do not necessarily arise from inefficient use of information’, the bulletin said.

‘It should be noted, however, that in periods of strong shocks in one direction, it may be difficult to disentangle whether this outcome [of errors] is due to sluggishness of the projections or to unexpectedly autocorrelated shocks’, the authors said.

Given the ‘significant projection errors’ during the recent surge in inflation, it was necessary to constantly monitor and analyse the errors and their implications for the projection process, the bulletin said.

‘[T]he results confirm the role of errors in oil price assumptions in reducing ECB/Eurosystem staff inflation forecast accuracy’, the bulletin said. ‘They also highlight their contribution to some bias in headline HICP projections, notably for the short term.’