How gloomy is Indonesia's growth forecast?
Very gloomy. Since the 1998 recession, forecasters have been very pessimistic about Indonesia's economic growth.
For example, let's take a look at IMF's forecasts since 2001, published in its World Economic Outlook Databases April edition.
Indonesia's actual economic growth and IMF's forecast (percent)1
The blue line is IMF's forecast. It has always been missed the actual economic growth (the red line) from below.Forecasting economic growth is difficult, all right. But, if IMF consistently underestimates Indonesia's economic growth for six consecutive years, I guess there must be something wrong with IMF's model of Indonesia's economy.2
What about Indonesian economists? Many of them are even more pessimistic than IMF. And it also depends on which groups of economists that you are talking to, like whether they are hired by the government or not. But it perhaps could be the subject of future post.
Growth, Macroeconomy 
Economics, Indonesia 
1IMF's forecast is from World Economic Outlook Databases April edition from 2001-2006. Actual economic growth is from Bank Indonesia and BPS. 2Indonesia's economy grows 5 percent in the first semester this year. Almost certainly, economic growth this year is more than 5 percent, the IMF's forecast. Note also that IMF publishes this forecasts in April, so they may have known a few things about what has been going on in the economy for the first quarter of the year.
8 comments:
1) The IMF always ers on the cautious side: it does not want to be seen to be overly optimistic.
2) The GDP forecasts look fairly upbeat to me. I can't mention names, but check them out for yourself. Look at BI's, the Ind govt's, etc
So they deliberately miss the target from below. Beautiful!
Upbeat? That's true, IndCoup. Actually we discussed it here last week.
I do hope you are right, but i wonder ..
Of course one may doubt wether institutions like IMF are just independent, objective. Their information is under constant suspicion of being manipulated. Moreover economic models by definiton are at odds with reality.
But on the other hand: can one really rely on the data provided by Bank Indonesia and the government (see f.i. your post of august 25th)?
The Methodology of GDP calculation has been changed since 2004. It upgrades Indonesia’s growth (2000-2006) about 0,3 to 0,6 percent, which is consistent with your statement. Nothing wrong with IMF's MODEL.
Colson: The August 25th post is about Mari Pangestu's prediction, not actual growth.
Can we rely on BPS? I don't know. If we can't, then we are in big trouble. But I think it is more independent now than it was.
Julian: Even using the 1993 constant prices, actual GDP in 2002 and 2003 are higher than corresponding IMF's forecasets; by about 0.2 percentage point in 2002 and 0.6 percentage point in 2003.
For the year 2004-2005 using the 2000 constant prices, you can see the graph in this post: IMF continues underestimating actual growth. For the year 2006, again IMF's April forecasts is very likely to underestimate the actual growth.
Since 2001, only for the year 2001, using the 1993 constant prices, IMF is just on the mark. See here and here for example.
How do we explain this?
Ok I got your point.
But your post is unbalance and unfair for pessimistic economists. Why don’t you explain that govt and many of other economist who support govt also have been overestimated Indonesia’s growth. Just look at govt assumption on budget. Their assumption has always been missed the actual growth.
My take on it: Don't take forecast models too seriously. They're often built of "faith" -- particularly on the faith that: a) no variable of interest have been omitted; and b) no structural shifts have occured.
To make good use of forecast models, I wouldn't trust a single forecast: make use of many. The elements of most models' econometric structure are constant, and this makes a particular model consistently overestimate or underestimate.
But I agree with indcoup: I think the IMF likes to err on the cautious side.
To understand this, you have to see the IMF's incentive: IMF officials would rather have the IMF be seen as pessimistic rather than as the institution that failed to foresee a crisis (and even then, they still failed to see many crises).
Julian: If I remember it correctly, growth assumption in APBN had also been too pessimistic. Actual growth was often, if not always, higher. Gov't priorities were used to be reducing inflation and the deficit rapidly, not economic growth.
In fact, we perhaps could say that back then, everybody was too pessimistic. There were times, when I gave talks, people were surprised in disbelief when I said that the economy was actually growing, and accelerating.
The forecast of gov't are upbeat only recently, I guess. True to his campaign promises, SBY wants to the economy to grow faster, and set a more upbeat growth assumption.
As I said elsewhere, the question of course is: do they deliver? Unfortunately, they have not.
Sorry that I don't have the figures of growth assumption handy with me right now, but I guess you could download the APBNs from Bappenas' site. If any of you guys have them, please drop a line. That would be really appreciated.
Arya: I see IndCoup's and your point. But, still, I think forecasting should always be about hitting the target, right?
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