## technology-and-long-term-growth-forecasts-kose

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### Overview
- Topic: Evolution of long-term growth forecasts during rapid technological change and implications for future growth.
- Sample: Long-term forecasts over 1998–2018 for 20 advanced economies and 18 emerging market and developing economies (38 countries) that constitute roughly 90 percent of global GDP.
- Forecast provider: Consensus Economics—surveys professional forecasters to generate long-term annual growth projections (the average forecast for 6–10 years ahead).

### Key findings: trends in long-term forecasts
- Global forecasts:
  - In 2010 the global economy was projected to grow at 3.3 percent in 2020.
  - By 2018 the long-term global growth forecast had been reduced to 2.5 percent.
- Downgrades:
  - Long-term forecasts were downgraded for all countries by an average 1.4 percentage points between 2007 and 2018.
- Precrisis vs postcrisis:
  - Between 1998 and 2007 the average long-term forecast rose from 3 percent to 3.4 percent.
  - Since the 2008–09 crisis, long-term forecasts materially deteriorated for both advanced and emerging market and developing economies.
- Country examples:
  - In 1998, US growth was expected to be about 2.4 percent in 2008; by 2008 that long-term forecast had been revised upward by 0.3 percentage point.
  - In 1998, China’s growth was expected to be 7.5 percent over the following decade; by 2008 the long-term forecast had been raised 0.2 percentage point.
  - By 2018 long-term growth forecasts for Brazil and India had declined 0.3–2.4 percentage points below 1998 levels.
- Forecast errors and optimism bias:
  - Long-term global growth forecasts made a decade earlier exceeded actual outcomes in every year of the 2008–18 period except 2010.
  - On average, long-range forecasts overshot actual growth by 1.2 percentage points.
  - Three-year-ahead forecasts overestimated growth by 0.7 percentage point over the period until 2018.
- Potential growth:
  - During 2013–17, global potential growth was roughly 1 percentage point lower than a decade earlier, attributable to weak productivity growth, sluggish expansion of investment, and a broadening slowdown in working-age-population growth.

### Interpretations and proposed explanations for increasing pessimism
- Forecasters’ cautious stance toward technology-induced growth gains:
  - Current forecasts align more with technology pessimists than technology optimists—growth is expected to slide further rather than receive a technology-driven productivity boost.
- Explanations based on information and measurement:
  - Forecasters may benchmark against recent low measured productivity growth, which could be underestimated because of measurement error (“You can see the computer age everywhere but in the productivity statistics.”).
  - Forecasters may be unable to project impacts of major technological changes because such changes are rare, their aggregate impacts are gradual, and econometric tools and data are inadequate to quantify effects.
- Structural-headwinds explanation:
  - Adverse demographic trends, slowing investment growth, and stagnating productivity from existing technologies could reduce growth prospects to such an extent that even large productivity gains from new technologies may not deliver strong long-term growth.
  - New technologies may not yet be mature enough for widespread business use; diffusion may require long and uncertain lags.
  - Obstacles to firms’ adoption of new technologies include financing constraints and limited worker skills.

### Consequences and implications
- Forecasts have consistently been optimistic relative to outcomes despite recent downgrades, indicating persistent optimism bias, especially at longer horizons.
- Long-term forecasts should reflect potential growth but often exceed estimates of global potential growth over the following decade.

### Policy recommendations
- Policymakers should act now to enhance potential growth rather than wait for technological benefits to materialize.
- Priority initiatives to accelerate realization of new technologies’ growth benefits:
  - Raise investment in human capital.
  - Expand infrastructure investment to facilitate the use of new technologies.
  - Improve institutions and regulations to meet the needs of technological change.
- Strategic posture: prepare for adverse scenarios while planning to capture potential future technological gains (invoking the spirit of “Plans are worthless, but planning is everything”).

*Source: M. Ayhan Kose, Franziska Ohnsorge, and Naotaka Sugawara, “The Growth Forecast Puzzle,” Finance & Development, March 2019.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2019/march/technology-and-long-term-growth-forecasts-kose.pdf_