An occasional paper published by the European Central Bank finds that real-time estimates of euro area output gaps and potential growth are subject to substantial revision, limiting their precision as measures of economic slack. Across a balanced sample of 11 euro area countries from 2007 to 2025, European Commission output gap estimates had the smallest absolute revisions, Organisation for Economic Co-operation and Development estimates had the largest, and Eurosystem estimates became markedly more stable over the past decade. Revisions to real GDP data and potential growth accounted for much of the change in output gap estimates, while current-year nowcast errors played a smaller role. Panel estimates indicate that about half of real GDP data revisions and more than one-third of two-year-ahead GDP forecast errors were reflected in revised potential growth estimates, suggesting that unexpected or revised GDP developments are partly absorbed into assessments of supply capacity. The paper argues that policymakers should assess output gaps alongside broader indicators such as capacity utilization, labor market measures and survey evidence.
2026-09-16European Central Bank
European Central Bank paper finds GDP data and potential growth drive output gap revisions
An European Central Bank paper finds that GDP data and potential growth revisions are the main drivers of changes to euro area output gap estimates. About half of GDP data revisions and more than one-third of two-year-ahead forecast errors were reflected in revised potential growth in the balanced sample. The paper recommends using broader indicators to cross-check real-time estimates of economic slack.