Achievement of forecasts for growth and inflation for 2018-19 at risk
Assessment begun of policy scenario published in the Update to the EFD
The validation letter for the trend macroeconomic scenario issued on 23 September by the Ministry for the Economy and Finance and presented in the Update to the Economic and Financial Document (the Update) was published today on the website of the Parliamentary Budget Office (PBO). On 14 September the PBO issued its comments on a preliminary version of the trend forecasts. As required, the PBO will also assess for possible validation the policy macroeconomic scenario published in the Update, which incorporates the effects of the upcoming budget measures.
The PBO Board validated the MEF’s trend forecasts for 2016-17 (with real growth put at 0.8 and 0.6 per cent respectively) as they fell within the acceptable range determined on the basis of available information, taking account of the forecasts of the PBO forecasting panel (which in addition to the PBO includes CER, Prometeia and REF.ricerche).
As regards the trend forecasts for 2018-19 – which lies outside the forecasting period considered in the Draft Budgetary Plan for 2017 subject to validation and for which the MEF trend scenario forecasts real growth of 1.2 per cent and 1.3 per cent respectively – we would emphasize the presence of adverse risk factors that sharply affect developments in real variables and in inflation. This raises concerns about whether the forecast performance can actually be achieved.
More specifically, the validation procedure considered a number of elements (see the technical attachment to the validation letter):
- the trend increase in GDP in 2016 and 2017, the deceleration of projected growth between this year and the next (-0.2 percentage points), developments in the components of demand and the assumed dynamics of inflation are essentially in line with the projections of the PBO panel;
- trend developments in the real scenario of the Update for 2018-19 diverge significantly from the PBO panel forecasts (especially in 2018, when the increase in GDP is three-tenths of a point higher than the upper limit of the PBO panel forecasts), while smaller divergences are found in the projections for inflation as well;
- other significant divergences for 2018-19 can be found in nominal GDP, a variable with that plays a key role in determining developments in public finance ratios: the official forecast is five and two tenths of a point higher than the median forecast of the PBO panel for 2018 and 2019 respectively.
