The Economic Outlook projections are produced twice yearly by the OECD Economics Department to provide a consistent view of the world economy, with a specific focus on recent and future macroeconomic developments in current and prospective OECD Member countries and the larger non-OECD economies, most notably Brazil, Russia, India and China (the “BRICs”). Designed to provide a consistent framework for the policy debate in and between Member countries, the OECD forecasts and accompanying analyses are conditional on a consistent set of assumptions about policies and underlying economic and financial conditions, including fiscal and monetary policy settings, exchange rates, oil and non-oil commodity prices and international financial markets (see the Box “Policy and other assumptions underlying the projections” in the “General Assessment of the Macroeconomic Situation” chapter of the relevant Economic Outlook).
The projections are made for a range of key macroeconomic variables in quarterly and annual frequencies, over a two to three year future horizon. The variable coverage for Member countries includes the usual range of national accounts demand and production aggregates, supply side and labour market indicators, wage and price inflation measures, monetary conditions, household and public sector accounts, trade volumes and prices and balance of payments accounts. Those for non-Members are considerably less detailed, including summary GDP, inflation, fiscal, trade and current account balances for enhanced engagement and larger economies, and main trade aggregates and balances for other regionally grouped non-OECD economies.
The relevant projections for OECD member countries are summarised in the corresponding Economic Outlook Annex Tables which report developments in key variables by country and broad regional grouping. A fuller coverage of historical data and projections across countries is available in the related Economic Outlook data publications and the OECD’s online statistical dissemination system OECD.Stat. For further details of specific variables and coverage see the Economic Outlook Database Inventory and the frequently asked database questions section.
Summary information on the projections, including those for selected non-member economies are also given in the relevant chapters of the Economic Outlook.
The forecasting process
The OECD’s projections are produced by its country experts interacting with its topic specialists, taking into account current and prospective developments, officially mandated policies, historical relationships between key variables and new information and indicators related to domestic and global conditions.
The effects of the new elements and revised judgments are typically assessed at the start of each forecasting round taken in conjunction with simulations of the effects of revised assumptions. In making the forecasts, particular attention is paid to consistency at domestic and world levels, to ensure that key accounting identities and relationships are observed, notably with respect to international trade and the balance of payments, a process assisted by the OECD’s international trade model (see Pain et al (2005) and Murata et al (2000) and a variety of other estimated relationships between key variables. The overall forecast assessment thereby combines both judgment and a range of econometric based evidence.
The role of government economists
The forecast process also benefits from detailed consultation and peer review from government economists and policy makers in member and non-member countries and other key international organisations (the International Monetary Fund, World Bank, European Commission, European Central Bank, the Bank for International Settlement). These take place through the regular meetings of the OECD’s Economic Policy Committee (EPC) and its expert working groups. Thus the main features of the projections and associated policy analyses are discussed by officials from finance or economic ministries and central banks. Country expertise is also drawn from the Economic and Development Review Committee (EDRC) country review process which also contributes to the OECD’s regular Country Surveys reports on Member and selected non-member economies. Such discussions are valuable in harnessing Member countries' knowledge and expertise. Although given due consideration, comments and suggestions from Member countries are not automatically reflected in the final version of the Economic Outlook and, overall, the published projections and analyses represent the independent assessment of the OECD Economics Department, published under the responsibility of the Secretary-General.
Since the OECD’s projection are conditional on specific assumptions, an important part of the Economic Outlook analysis typically focuses on associated risks and uncertainties and potential imbalances in the world economy. Such risks are often illustrated by means of alternative scenarios and simulations based on different assumptions about policies, world market conditions or underlying structural factors e.g. different paths of commodity prices, exchange rates, policy mix, business or consumer confidence, using a macro-econometric model and other empirical-based analytical tools. The outcomes of such assessment are typically reported in the chapter General Assessment of the Economic Situation of the Economic Outlook and in separate publications.
Medium and longer-term analyses
In order to elaborate further the underlying nature of possible longer-term build-up or unwinding of specific imbalances and tensions in the world economy, the OECD now routinely constructs longer-term baseline (LTB) scenarios extending the short-term projections numerous years beyond the normal short-term horizon. These also serve as a basis for simulation comparisons with other scenarios based on alternative forecast assumptions. The LTB projections do not however embody a specific view about the nature or timing of future cyclical events but are conditional on number of stylised assumptions about policies and growth, in particular the technical assumption that output gaps close progressively over the projection period bringing the level and growth of actual GDP in each individual country back to estimated potential, within a specified period, see Giorno et al (1995), Beffy et al (2006) and Forecasting tools and analytical methods. Summary details of the OECD’s longer-term baselines are typically published in the May/June edition of the Economic Outlook along with related supply-side analyses.
The assessment of forecast accuracy
Given the inherent uncertainties in making economic forecasts, the OECD periodically reviews its projections for predictive accuracy. Typically, such analyses try to distinguish between errors arising from data revisions, changes in underlying assumptions, and errors of judgement about economic conditions and forces shaping the outlook. Typically, larger projection errors appear to occur around major turning points in economic activity. The reasons for this may be due to errors of judgement or a decline in the predictive power of normal economic relationships or the quality of information available in and around cyclical turning points. The most recent published assessments of the forecast accuracy of the OECD projections are given by Vogel (2007), Lenain and Koutsogeorgopoulou (2000).
Last updated: December 2011
Sources & Methods of the Economic Outlook