Are official GDP growth forecasts for Latin American and Caribbean countries downward biased?

Abstract

This article presents a comparative analysis of GDP growth forecasts for 19 Latin American and Caribbean (LAC) countries, reported by the IMF and ECLAC for the period 2003---2013. Contradicting the general result of the literature that asserts that economic predictions of official organizations tend to be optimistic, our results show that during that period, one year-ahead IMF and ECLAC GDP growth forecasts were downward biased. Furthermore, the analysis of usual goodness of fit measures and accuracy tests show that ECLAC’s forecasts performed relatively better than that of the IMF during the period. Another interesting result is that no evidence was found regarding the influence of political type incentives on the bias of GDP forecasts as suggested by some authors. Instead, the results show that downward bias in projections has been strongly influenced by the underestimation of the impact of international
economic factors, particularly the drastic increase in commodity export prices, on GDP growth of LAC economies.