Optimistically biased economic growth forecasts and negatively skewed annual variation

Authoritative economic growth forecasts are often optimistically biased. One possible reason is that growth often has negatively skewed variation--negative shocks tend to have larger magnitudes than positive shocks, as the Great Recession and COVID-19 crisis illustrate. Negative skewness means that average growth over decades is smaller than typical-year (median or mode) growth, which would positively bias forecasts based on typical years. Here, we quantify this aspect of negative skewness in real per-capita GDP growth since the Industrial Revolution (1820-2016), by comparing medians and means across countries, regions, and time windows. 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 these differences are driven by negative skewness in both large- and medium-magnitude shocks, rather than only large shocks ('black swan' events). We also find our measure of negative skewness correlated with slow average per-capita GDP and population growth, high per-capita GDP growth volatility, and high per-capita GDP and population, building on previous studies. We find that recent over-projections of growth--by the International Monetary Fund (IMF), the U.S. Congressional Budget Office (CBO), and the Shared Socioeconomic Pathway (SSP) scenarios informing climate change research--have mostly been larger than can be explained solely by negative skewness, suggesting other sources of bias exist.