Reliable Forecasts

A Bubblegum Recovery

  • Why it matters

    Why it matters

    Economic forecasters think Germany will continue to grow, but are struck by companies’ reluctance to invest, which they say is hampering a more substantial recovery.

  • Facts


    • The German government predicts GDP growth of around 1.4 percent this year.
    • Academic research published last month suggested that most economists’ predictions of GDP, price inflation, and other key indicators were inaccurate.
    • Economic forecasters differ on whether lagging corporate investment will improve this year, having remained stubbornly low throughout the economic recovery.
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Ifo-Index sinkt weiter
Construction is booming but economists warn there's not enough investment. Source: DPA

“You can be right with a bad prediction,” German economist Stefan Kooths says, “And you can be wrong with a very good prediction.”

Mr. Kooths, the head of forecasting at the Kiel Institute for the World Economy, or IfW, in northern Germany, explains that predicting gross domestic product (GDP) too early on isn’t good. It draws too much public attention. Quality forecasts can only be made by looking at basic assumptions and predicted drivers of growth.

Nonetheless, 2016 was a good year for economic forecasters. “The institute’s overall forecast narrative largely happened as predicted,” said Ferdinand Fichtner, of the German Institute for Economic Research, or DIW, a Berlin-based research body.

The institute forecast relatively strong domestic demand, supported by low inflation, and comparatively weak growth in the world economy. Mr. Fichtner admits it was partially luck. “We forecasters are good at describing the continuation of existing trends, and 2016 was a year where trends continued,” he explained.

Forecasters are less adept, he added, at predicting turning points in the economy, or incorporating political developments into the economic picture. 2017 is proving to be a more difficult year in comparison, especially considering U.S. President Donald Trump’s economic policy plans, which still remain unclear.


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