errors, averaging 2.5 percentage points for the January GEP forecasts and 2.9 percentage points for the January WEO forecasts. These are quite large given that the MENA average growth rate for this period was only 1 percent. The positive forecast errors are indicative of an optimism bias—institutional forecasters tend to predict higher growth rates than are realized. For lack of a better term, we refer to forecast errors as the degree of “optimism bias.”<sup>8</sup> Optimism bias is consistent across all regions, although it is largest in the MENA region.

A similar story emerges for the absolute GDP growth forecast errors, which is the absolute value of the difference between GDP growth forecasts and realized GDP growth. In other words, absolute forecast errors remove the direction of the bias and hence reflect the accuracy of the forecasts. Globally, the absolute forecast error is 2.5 percentage points for the January GEP forecasts and 2.7 percentage points for the January WEO forecasts. It is also the largest for the MENA region (see Figure 1, Panel B). We refer to absolute forecast errors as the “inaccuracy” of the forecasts. Both forecast errors and absolute forecast errors appear not to vary systematically by a country's level of income, at least for the sample in this study. The MENA region stands out with its high forecast errors, which are not dependent on the level of development. Both panels in Figure 1 indicate that growth forecasts from the IMF’s WEO are slightly more optimistic and more inaccurate than growth forecasts from the World Bank’s GEP, for all regions. Note that the panels are constructed from a common sample of the IMF’s WEO and World Bank’s GEP, so the findings are not driven by differences in the sample composition. These results are confirmed by more rigorous econometric estimations in Sections IV and V.

**Figure 1. January Same-Year GDP Growth Forecast Errors by Region and Institution (2010–2020)**

<!-- Start of picture text --> Panel (A) Panel (B)<br>Optimism: Forecast Error Inaccuracy: Absolute Forecast Error<br>4.0 4.0<br>3.5 3.5<br>3.0 3.0<br>2.5 2.5<br>2.0 2.0<br>1.5 1.5<br>1.0 1.0<br>0.5 0.5<br>0.0 0.0<br>MENA LAC SSA SA EAP ECA MENA LAC SSA SA EAP ECA<br>IMF-WEO WB-GEP IMF-WEO WB-GEP<br>World average (IMF-WEO) World average (WB-GEP) World average (IMF-WEO) World average (WB-GEP)<br>Percentage Points Percentage Points<br><!-- End of picture text --> Source: Authors’ calculations based on the International Monetary Fund’s January _World Economic Outlook_ (WEO) and the World Bank’s January _Global Economic Prospects_ (GEP).

Note: The figure displays the same-year January GDP growth forecast errors (Panel A) and same-year absolute GDP growth forecast errors (Panel B) of the IMF’s _World Economic Outlook_ and the World Bank’s _Global Economic Prospects_ . Forecast errors are calculated as the forecasted GDP growth rates minus realized GDP growth rates. Absolute forecast errors are calculated as the absolute value of the forecast errors. The figure is constructed based on a common sample of 141 countries (largely developing economies) collected in January for each year between 2010 and 2020. The MENA region includes both GCC and non-GCC countries.

MENA also stands out as the region with highest forecast error and absolute forecast error from the private sector’s growth forecasts. Appendix Figure A1 shows average GDP growth forecast errors (Panel

> 8 Forecast errors can be the result of factors other than optimism bias, such as unforeseen shocks.

6