Wednesday

16th Aug 2017

OECD admits failure to understand scale of eurozone crisis

  • The OECD said it made its biggest forecasting errors since the 1970s oil crisis (Photo: oecd.org)

Failure to appreciate the scale of Europe's banking crisis led to the most significant economic forecasting errors since the oil crisis in the 1970s, the Organisation for Economic Co-operation and Development has said.

The admissions were contained in a 'post-mortem' report on the eurozone crisis published by the Paris-based think tank on Tuesday (11 February),

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

“The repeated deepening of the euro area sovereign debt crisis took us by surprise, because of the stronger-than-expected feedback between banking and sovereign weaknesses," OECD Chief Economist Pier Carlo Padoan said at an event launching the paper in London.

“We have learned a lot from the crisis,” he added.

The organisation’s economic projections repeatedly under-predicted the extent of the collapse in activity during the 2008-09 financial crisis and then over-estimated the pace of recovery in the following years. The eurozone fell into a double-dip recession in 2011-12 before returning to anaemic growth of 0.2 percent in 2013.

”We have taken steps to improve short-term forecasting models, construct better indicators of financial conditions and explore the risks around our forecasts more systematically,” Padoan said.

He added that the belief that the eurozone's debt crisis would gradually play itself out was the biggest mistake made by analysts.

“It was the repeated assumption that the euro crisis would dissipate over time, and that sovereign bond yield differentials would narrow, that turned out to have been the most important source of error.”

But the OECD is not the first to face the charge that it underestimated the scale of the crisis.

Accusations of poor and over-optimistic forecasting have also been laid at the door of the European Commission and the International Monetary Fund, particularly in respect of Greece's bailout.

Greece has experienced one of the deepest peacetime recessions to hit an advanced economy. The country's output has reduced by more than 25 percent in the past six years. Meanwhile, unemployment has soared to 27 percent with youth joblessness hovering over 60 percent.

But the OECD report says that although it failed to forecast the scale of the downward impact austerity policies would have on economic growth in Greece, this was less of a factor in the rest of the eurozone.

OECD raises eurozone growth forecasts

The eurozone is likely to grow by 2.7 percent this year, the OECD said on Tuesday upgrading its growth forecasts for the 12-nation zone.

News in Brief

  1. Russian power most feared in Europe
  2. UK unemployment lowest since 1975
  3. Europe facing 'explosive cocktail' in its backyard, report warns
  4. Danish police to investigate misuse of EU fishing rules
  5. German constitutional court questions ECB's €2tn spending
  6. Low support for Norway's labour party ahead of elections
  7. Slovakia's future is with core EU, says PM
  8. Italy relieved as migration drops to lowest level since 2014

Stakeholders' Highlights

  1. ACCABusinesses Must Grip Ethics and Trust in the Digital Age
  2. European Jewish CongressEJC Welcomes European Court of Justice's Decision to Keep Hamas on Terror List
  3. UNICEFReport: Children on the Move From Africa Do Not First Aim to Go to Europe
  4. Centre Maurits CoppietersWe Need Democratic and Transparent Free Trade Agreements Says MEP Jordi Solé
  5. Counter BalanceOut for Summer, Ep. 2: EIB Promoting Development in Egypt - At What Cost?
  6. EU2017EELocal Leaders Push for Local and Regional Targets to Address Climate Change
  7. European Healthy Lifestyle AllianceMore Women Than Men Have Died From Heart Disease in Past 30 Years
  8. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  9. ACCAAnnounces Belt & Road Research at Shanghai Conference
  10. ECPAFood Waste in the Field Can Double Without Crop Protection. #WithOrWithout #Pesticides
  11. EU2017EEEstonia Allocates €1 Million to Alleviate Migratory Pressure From Libya in Italy
  12. Dialogue PlatformFethullah Gulen's Message on the Anniversary of the Coup Attempt in Turkey