(The following statement was released by the ratings agency)
Dec 17 - In its latest study on the accuracy of EU fiscal
forecasts, Fitch Ratings says that between 2000 and 2010
European governments have on average underestimated their
three-year-ahead fiscal deficits by 1.8% of GDP and their
public debt by 3.4% of GDP.
In the two years since Fitch's last study, the "optimistic
bias" seen during 2009-10 is much more pronounced than observed
during 2008-9 and represents a significant reversal of the
previous trend towards more accurate forecasting.
'All European governments have suffered a decline in the
accuracy of their public finance forecasts over the past two
years due in large part to the unanticipated and severe global
recession," said Douglas Renwick, Director, in Fitch's
Sovereign Rating Group.
"However, even after taking into account weaker than
expected economic growth as a result of the global recession
and its knock on effect on public finances, the persistent
optimistic bias in fiscal forecasts is a source of concern as
it undermines the credibility of government budgetary plans and
targets," Renwick added.
"This credibility of medium-term budgeting is vitally
important as governments now begin to enact austerity
measures," said Robert Shearman, co-author of the report and
member of Fitch's Sovereign Rating Group.
The study shows that based on data since 1998 to date,
forecast accuracy has varied significantly by EU member state:
Cyprus and the Czech Republic are the only countries to display
"pessimistic bias" in their forecasts for both fiscal balance
and public debt overall whilst Austria, Belgium, Estonia,
Finland, Slovenia and Sweden are amongst those with the most
accurate predictions.
Conversely, since 1998 Greece, Hungary, Italy, Latvia and
Portugal have been the least accurate over the period analysed.
For example, Greece and Portugal have on average underestimated
their one-year-ahead fiscal deficits by 4.9pp and 1.4pp of GDP
respectively, compared with 0.6pp for the EU as a whole.
In terms of older versus newer EU members, of the 210
medium-term plans made by EU-25 governments since 1998, Fitch
found EU-15 governments have exhibited a greater tendency for
optimistic forecasting than the 10 new member states which
joined the EU on 1 May 2004. The results indicate a lesser
tendency towards "optimistic bias" from the new members
(excluding Cyprus and Malta) compared with the EU-15. This is
most clearly seen in debt ratios, which the new members were
found to typically underestimate, but is also present in public
balance forecasts and, to an extent, growth projections.
For the study, Fitch took forecasts for real GDP growth,
the general government balance/GDP ratio, and the general
government debt/GDP ratio from 210 stability/convergence
programmes from 1998 to date covering the EU-25. For each
indicator the agency calculated the error, measured in
percentage points, by subtracting the forecast from the
outturn. A negative (positive) error implies a tendency to
overestimate (underestimate) the variable. To interpret the
data, Fitch calculated the mean error (bias) and mean absolute
error (MAE) for each indicator, forecast horizon and country.
