Optimistically biased economic growth forecasts and negatively skewed annual variation

Authoritative economic growth forecasts are often optimistically biased, with important implications for debates regarding growth futures and climate change scenarios. Negatively skewed variation--where negative shocks to growth are larger than positive shocks--might contribute to bias. Negative skewness makes long-run average growth smaller than typical-year (median) growth, which positively biases forecasts based on typical years. We compare medians and means in real per-capita GDP growth across countries, regions, and time windows from 1820-2016. Over decadal periods, we find mean growth rates to be <1%/y smaller than median growth rates in most countries and regions (median 0.23%/y across countries). Surprisingly, we find both large- and medium-magnitude shocks contribute to these differences, rather than only large ‘black swan’ events. We find negative skewness correlated with high levels and slow growth of per-capita GDP and population, and high per-capita GDP growth volatility, building on previous studies. We find that recent growth over-projections--by the International Monetary Fund (IMF), the U.S. Congressional Budget Office (CBO), and the Shared Socioeconomic Pathway (SSP) scenarios--have mostly been larger than negative skewness alone can explain, suggesting other sources of bias exist. Analyses and policy using economic forecasts should account for negative skewness and positive forecast biases.