An economic forecast is the prediction of future economic trends. It is often based on mathematical models and/or a judgment of expert economists. It is commonly used to support policy decisions or financial planning. Forecasts are often compared to actual values to determine their accuracy and validity.
A popular method of economic forecast is the econometric model. It uses mathematical models to predict the future evolution of the economy by modeling past behavior using time series data. The results of the econometric model are then compared with those of a more traditional model in order to assess accuracy and identify systematic errors.
The most important economic variable most commonly forecasted is Gross Domestic Product (GDP) from the national accounts. Other economic variables often forecasted include inflation and unemployment. A retail company, for example, may use sales forecasts to optimize production capacity and inventory.
One of the biggest issues with economic forecasting is that it is a highly subjective endeavor. Predictions are heavily influenced by what type of economic theory the forecaster buys into. For instance, the same economic model can yield drastically different predictions between an economist who believes that business activity is determined by the supply of money and another who believes that hefty government spending hurts economic growth.
Global economic prospects have been weighed down by rising trade barriers and elevated policy uncertainty. In addition, high debt levels continue to constrain fiscal space and limit the transmission of looser monetary policy. A reversal of new trade barriers and a peaceful resolution to ongoing conflicts would help to lift global economic growth.
