• The RBA is a serial offender when it come to overestimating Australian economic growth underlying inflation pressures since the GFC.
• The NAB estimates the RBA’s year-ended GDP forecasts have overestimated actual growth by 0.4ppts since the GFC. For inflation, it’s forecasts have undershot core CPI by an average of 0.3ppts over the same period.
• The RBA downgraded its GDP and core inflation forecasts earlier this month. Any further undershoots will mean 2019 will be a tough year for the Australian economy.

The Reserve Bank of Australia (RBA) is a serial offender when it come to overestimating Australian economic growth underlying inflation pressures since the GFC.

Courtesy of the National Australia Bank (NAB), here are two charts that show the RBA’s less-than-stellar track record.

The first shows the RBA’s GDP growth forecasts in red compared to actual GDP growth in black.

The thin red bar show the margin of error in the bank’s forecasts going back to 1990.

The next shows the bank’s track record for its underlying inflation forecasts over the same period.

The same rules apply to the first chart — the red line is its forecasts with the black line the actual movement with the thin red bars, the actual forecast error.

For both GDP and core CPI, particularly the latter, the RBA has constantly overestimated reality since the GFC.

According to the NAB’s calculations, the RBA has overestimated year-ahead GDP growth by an average of 0.4 percentage points since the GFC. For core inflation, its forecasts have overstated the year-ahead change by a slightly smaller 0.3 percentage points during this period.

Given that track record, it comes as no surprise that the RBA downgraded both its GDP and core inflation forecasts earlier this month compared to those offered just three months ago.

While those downgrades will make it more difficult for the RBA to overestimate again, let’s hope its recent form isn’t repeated. If it does, it points to sluggish economic growth and, in all likelihood, higher levels of unemployment this year.

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