Convergence, Rationality and Accuracy in South African Consensus Economic Forecasts

Abstract

The average values of numerous forecasts about South African economic variables are often calculated to give a summary measure of all the various forecasters' views. This mean forecast, often termed the consensus forecast, is found to increasingly represent the information held by forecasters as the forecast horizon declines. The forecasts of Inflation and GDP growth rates are investigated in this paper. The mean forecast is found to systematically underpredict large actual outcomes and overpredict low actual outcomes at long forecast horizons, with the opposite behaviour being found at short horizons. Both mean forecasts are found to be Muthian rational at all horizons. Forecasts of growth in GDP become more accurate as the forecast horizon declines, although not monotonically. Forecasts of inflation do become monotonically more accurate. The mean forecast is shown to be more accurate at all horizons compared to two extrapolation models. No relationship is found between the degree of dispersion of the forecasts around the mean and the means's accuracy for forecasts of both GDP growth and inflation.