Assessing the World Bank’s growth forecasts

Abstract

In this study, the performance and rationality of the gross domestic product growth forecasts by the World Bank (WB) for six regional aggregates and 130 individual countries between 1999 and 2019 are assessed. A large body of literature examines macroeconomic forecasts for advanced economies by intergovernmental agencies, including the International Monetary Fund, Organization for Economic Co operation and Development, and European Commission. However, WB forecasts for emerging and developing economies rarely exist. Therefore, this study provides the first comprehensive investigation of the WB’s growth forecast not only for regional aggregates but also for 130 countries between 1999 and 2019. The results of the investigation are summarized as follows. (1) The next-year forecast performances of the majority of the regions improved after the financial crisis of 2008, while only a few of the current-year forecast performances of the regions improved. (2) The current-year forecasts are mostly unbiased throughout the sample period. (3) Longer horizon forecasts are mostly optimistic in the last decade, and the next-year forecasts particularly transformed from conservative to optimistic after the financial crisis. (4) These forecasts are broadly rational when asymmetric loss is assumed after the financial crisis, whereas rationality of the next-year forecasts prior to the financial crisis is even rejected under asymmetric loss. (5) The extent of improvement in forecast performance, conservativeness, and optimism are not strongly associated with regions, exports and/or imports patterns, or income levels with a few exceptions. These results suggest that forecast users, particularly policy makers in those countries, should carefully use the WB’s forecasts not to over-invest, which may lead to unstable economic growth and fiscal balance.