RIETI Report February 2020

The accuracy of long-term growth forecasts by economics researchers

Although long-term macroeconomic forecasts substantially affect the sustainability of government debt and the social security system, they cannot avoid significant uncertainty. In this column, Masayuki Morikawa assesses whether academic researchers in economics make accurate long-term growth forecasts, comparing ten-year growth forecasts made by Japanese economists in 2006–2007 with the realized figures. Even excluding the years affected by the Global Crisis, the results show that forecasts tend to be biased upwards and involve significant uncertainty, even for economics researchers specializing in macroeconomics or economic growth.

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The accuracy of long-term growth forecasts by economics researchers

MORIKAWA MasayukiVice President, RIETI

The accuracy of long-term macroeconomic forecasts substantially affects the sustainability of government debt and social security systems. However, long-term forecasts cannot avoid significant uncertainty because the future developments of new innovations and their diffusion are difficult to assess quantitatively. In addition, many unforeseeable events such as financial crises, international conflicts, and major natural disasters occur.

Many studies have indicated that economic growth forecasts by government agencies tend to be biased upward. In the case of Japan since the fiscal year 2000, the government's GDP growth forecast for the next fiscal year has, on average, had an upward bias of 0.5 percentage points and 1.4 percentage points for real and nominal GDP growth rates, respectively. The upward bias in economic growth forecasts often causes optimistic bias in the projections of fiscal balance and debt level. However, these studies have mostly focused on short-term forecasts of one or two years.

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