By Georgi Kantchev of The WSJ. Excerpts:
"over-optimistic economic growth forecasts—including the IMF’s own—could help cause recessions and fiscal problems. The IMF argues that positive forecasts lead the public and private sector to “celebrate” by borrowing more, which encourages the sort of debt accumulation that builds frailties in the economic system, harming growth.
“Over-optimism brings economic damage in later years,” the authors write. “An overestimation of the future rate of economic growth could provide a short-run boost to the economy, but it also increases the subsequent probability of a recession and other economic difficulties,” they say."
"forecasts for next year’s gross domestic product growth have been 0.58 percentage points higher than the actual number. Research shows that such an upward bias is also present in forecasts made by private sector economists"
"The IMF has also missed most recessions in its forecasts, predicting only 24% of recessions one year ahead of the event."