When Forecasts Meet Reality: Assessing Climate Damage Functions

This paper assesses estimates of the economic impacts of climate change by leveraging the IMF’s World Economic Outlook (WEO) forecasts (1990-2023) as climate-free counterfactuals. Placebo tests confirm WEO forecasts do not capture climate effects. By adding climate damage estimates to forecasts and comparing with actual GDP growth, we find climate damage functions explain only a small share of forecast errors—reducing mean absolute errors by up to 0.4 percentage points (about 6% of the forecast error). The most severe damage functions predict contractions in some countries that are inconsistent with observed growth, suggesting overstated near-term climate impacts.