Economic Forecasts

Hitting the Mark

Mirror, mirror on the wall, who's the best economist of all? Source: Vario Images
Mirror, mirror on the wall, who's the best economist of all?
  • Why it matters

    Why it matters

    The Berliner Sparkasse savings bank and the Bundesbank, Germany’s central bank, made the best forecasts for Europe’s largest economy.

  • Facts


    • The German economy grew by 1.5 percent last year.
    • Few experts expected the low rate of inflation.
    • They are divided on the prospects for 2015.
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It was a year of ups and downs for the German economy.

After a robust start, it looked like growth would crack the magic 2 percent level in 2014, but by the summer that confidence had vanished. The crisis in Ukraine and ongoing difficulties in the euro zone had dampened the mood.

It wasn’t until late in the year that the economic prospects started to look better again. In the end, the German economy grew by an inflation-adjusted 1.5 percent compared to the year before.

For the first time in three years, that is somewhat stronger than the long-term trend. The figures were reported by the German Federal Statistical Office on Thursday, confirming earlier information received by Handelsblatt.

Germany’s economy is in “solid shape,” said Roderich Egeler, president of the Federal Statistical Office.

The economy got a boost from the domestic market and foreign trade. Private consumption did not grow at breathtaking speed, but still rose by 1.1 percent, and exports were up by almost 4 percent.

More is now being invested in Germany again. The gross fixed-capital formation rose by 3.1 percent last year, after two years of it declining.

Still, most economic experts had expected even stronger growth for the German economy. Four of five economists had predicted a higher rate of growth, as was evident in this year’s Handelsblatt forecast rankings.

Our editors evaluated the growth predictions of 26 economic forecasters made before the end of 2013 for the following year.

Economic forecasters are somewhat more pessimistic for 2015 than they were in 2014.

Those who made the best forecasts were public institutions. The most accurate forecasts came from the state-owned savings bank Berliner Sparkasse, and the second-best from the German Bundesbank. Their success appears not to have been accidental, as last year both were in the top three in the forecast competition.

Both of them forecasted GDP growth of 1.7 percent, which was somewhat too high. But both were close to the mark with their individual values for German economic trends. Since Handelsblatt did not only look at forecasts for overall GDP, but also at six further values (see graphic) in order to reward the best overall prediction of economic trends, both banks were able to push to the front of the pack.


Handelsblatt Forecast Ranking-01


The experts at Berliner Sparkasse, for example, predicted a smaller increase in private consumption than most of their competitors, and as a result were almost exactly right.

“Consumption is playing a greater role these days as a source of growth,” said Sparkasse economist Uwe Dürkop looking back. He said he never believed in the idea that people would save less because of the low interest rates, and therefore would buy a great deal. The numbers proved him right.

Mr. Dürkop and the Bundesbank were also on the money with their predictions for inflation. They were almost the only ones of the 26 institutions studied who predicted a considerably slower rise in prices over the previous year. All of the others were caughtout with their inflation-rate predictions, as it turned out to be a measly 0.9 percent.

The Bundesbank’s accuracy is not entirely surprising. “We naturally make a huge effort when it comes to the inflation forecast,” said Johannes Hoffmann, an economist at Germany’s central bank. As a result, they were very sure that the price increases for food and energy would decline considerably.

The state-owned Bayrische Landesbank ranked third this year. The Munich-based economists hit the bulls-eye with their comparatively skeptical forecast for GDP growth of 1.5 percent. “We were of the opinion that Germany would not be able to unhitch itself so quickly from the trends in the euro zone,” said economist Stefan Kipar.

In this year’s rankings, the weak performance of the large economic research institutes, such as RWI, IWH, DIW and Ifo was especially striking. They have a large number of employees at their disposal and especially complex forecast models, but, at least in this past year, these factors did not give them a noticeable advantage: in the Handelsblatt rankings they came in at spots 10 to 14.

All four institutes take part in the so-called joint economic forecast, which is commissioned by the German Economy Ministry twice a year. But this forecast landed in third-to-last place, despite the cumulative expertise of those involved. Still, that forecast was made public in October 2013, which gave it a competitive disadvantage in comparison with the other forecasts. The same holds true for the forecasts made by the council of economic advisors from November, which at 21st place, did not achieve glory, despite its five so-called “wise men.”

Economic forecasters are somewhat more pessimistic for 2015 than they were in 2014. On average, they predict German growth of 1.4 percent. And they see private consumption as more of a driver of economic growth than they did last year.

The champions from the current rankings are divided when it comes to 2105.  While the Bundesbank is predicting a GDP growth of just one percent, Bayrische Landesbank and Berliner Sparkasse are more confident, believing an increase of 1.5 percent is possible.


Hans Christian Müller-Dröge covers economics for Handelsblatt. To contact him:

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