Wifo-Boss: Why Forecasts Are Wrong

According to Wifo and IHS, Austria narrowly avoids a third year of recession. The economic researchers revised their growth forecasts upwards on Thursday. In the past, however, the outlook had continuously deteriorated - much to the dismay of politics. Why are the forecasts changed so often? Wifo Chief Gabriel Felbermayr dealt with this question on Friday at a workshop.

"In a way, Nehammer was right"

Austria's state must save. How difficult the path to budget consolidation will be also depends on how the economy will develop - frequent changes naturally complicate planning. Former Chancellor Karl Nehammer (ÖVP) even saw part of the blame for the budget gap with the economic researchers at the end of 2024, as they had been too optimistic for a long time, causing politics to misjudge their fiscal leeway.

The event on Friday can certainly be understood as a response from Wifo to such criticism. "In a way, Nehammer was right," said Felbermayr, who also showed understanding for the former chancellor's annoyance. At the same time, the criticism is "absurd." The forecasters had always pointed out that their predictions are subject to great uncertainty. In other words: It was the decision of the politicians not to plan a larger safety cushion in the budget.

Risk versus "radical uncertainty"

But what does uncertainty mean from the perspective of economic augurs? Felbermayr distinguishes between risk - that is, solvable or calculable uncertainty factors - and "radical uncertainty." This includes completely unforeseeable events or events whose probability or timing is hardly calculable. "We can agree, there will be (in the future; note) a financial crisis," Felbermayr cited as an example. "But when, we do not know."

Another cause for "incorrect" forecasts lies in the data that flows into the models of economic researchers. Whether it's foreign trade figures, labor market data, or industrial production - these seemingly unassailable key figures can indeed vary depending on the calculation method and statistical office. As an example, the Wifo chief mentioned the trade balance between the USA and the United Kingdom. Here, statisticians on both sides of the Atlantic come to fundamentally different values.

Need for Discussion Identified

Felbermayr saw a need for discussion in this context with Statistics Austria and cited industrial production as an example. In this country, the initial estimate would be revised much more often in retrospect than in Germany. The Statistics Austria director present in the room, Thomas Burg, countered that preliminary results are highly dependent on quick data availability. For example, various data from tax authorities in Austria would be delivered to the statistical office significantly later than in Germany.

Another difficulty with forecasts lies in the models used. Often it is difficult for researchers to distinguish whether an economic downturn has cyclical or structural reasons - which in turn makes it harder to predict how things will continue.

In the end, Felbermayr also addressed the debate around the concept of Gross Domestic Product (GDP). This is "not everything" as a guideline for economic policy. If you compare the GDP per capita of France and the USA, France lags significantly behind. However, if you look at life expectancy and available leisure time, a much more differentiated picture of the living situation in both countries emerges.

(APA/Red)

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