Budget growth forecasts unreliable: report

March 15, 2010

OTTAWA – It’s time to remove the rose-coloured glasses around the reliability of “consensus” forecasts used in the federal budget, says a new report released today by the Canadian Centre for Policy Alternatives (CCPA)

The report, by economist David Macdonald, highlights the underlying uncertainty of GDP “consensus” growth forecasts and extends the concerns recently expressed by the Parliamentary Budget Office (PBO).

“There is no such thing as a private sector consensus forecast,” says Macdonald. “A straight average of GDP forecasts completely papers over what might be instructive disagreements among the experts on where Canada’s economy is headed.”

For example, forecasters for 2010 break neatly into pessimists and optimists with a large gap of almost 1% real growth between them. The cumulative effect of these differences over several years can be substantial and may play out in the real economy in the form of fewer jobs and higher unemployment.

If one chose the most optimistic forecasts of real GDP growth every year, the deficit in 2014-15 would be $7.3 billion, based on status quo spending and revenue measures. If one chose the most pessimistic forecasts, we would be dealing with a more substantial deficit of $33.5 billion.

“There is uncertainty in forecasting, to be sure, but those forecasts are based on assumptions, and those assumptions reveal biases, not facts,” Macdonald says. “Those varying assumptions, over time, come to quite different conclusions.”


Removing the Rose-Coloured Glasses In Budget Forecasting is available on the CCPA website: http://policyalternatives.ca

For more information contact Kerri-Anne Finn, Senior Communications Officer, at 613-563-1341 x306.