## Figure 1.3. The Growth-at-Risk Approach

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**Canonical URL:** [Figure 1.3. The Growth-at-Risk Approach](https://www.imf.org/-/media/files/publications/gfsr/2018/oct/ch1/pdf/figure1-3.pdf)

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### Concept and mechanics
- The growth-at-risk (GaR) approach links current financial conditions to the distribution of future growth outcomes.
- The forecasted range of severely adverse growth outcomes are those that occur with 5 percent probability (also called the “tail” of the distribution).
- The 5th percentile of the forecast distribution is referred to as the GaR threshold and provides a metric to assess the degree of concern about risks to growth and financial stability.
- Illustration elements:
  - A stylized distribution of one-year-ahead growth forecasts (black).
  - A stylized distribution of three-year-ahead growth forecasts (red).
  - The GaR threshold for the near-term distribution is shown by a black dot.

### Key comparisons and implications
- Mode and tail characteristics:
  - The medium-term (three-year-ahead) growth distribution has a similar mode but a fatter left tail than the near-term (one-year-ahead) growth distribution.
  - A fatter left tail implies higher downside risk in the medium term than in the near term.
- Shifts in distributions:
  - A leftward shift of the forecasted growth distribution—driven by changes in financial conditions or vulnerabilities—raises downside risks to growth.
  - If tightening financial conditions shift the 5th percentile of the near-term distribution further left, the GaR threshold is lower and the downside “tail” risk to growth and financial stability is higher.

### Visual and axis detail
- Growth rate (percent) density axis labeling shown from 0.0 to 1.0 in increments of 0.1:
  - 0.0, 0.1, 0.2, 0.3, 0.4, 0.5, 0.6, 0.7, 0.8, 0.9, 1.0
- The figure caption identifies the plotted element: “Growth Forecast Distributions (Probability density)”.

*Source: IMF staff estimates.*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2018/oct/ch1/pdf/figure1-3.pdf_