An economic forecast is a prediction of the future state of an economy. Economic forecasts are important because they help business and other decision makers plan for the future and make decisions about how to expand or contract their businesses. They can also provide valuable information about how fast the economy is growing and where it may be heading.
A variety of methods are used to generate economic forecasts, including surveys of business investment plans, econometric models and computational general equilibrium models. The accuracy of a forecast depends on the type of model and the quality of the data inputs. The education and working experience of a forecaster can also have a significant effect on the accuracy of his or her predictions.
It’s important to remember that economic forecasts are a form of judgment, not an exact science. Many of the components of an economic forecast are predictable based on historical data and well-known economic principles. But the underlying assumptions and biases of the forecaster can greatly affect the results.
For example, a long-range forecast of total economic activity usually assumes that the economy will be at “full employment” by the end of the period being forecast. This can be influenced by the number of people who will reach the working age during that time; changes in the proportion of this group can significantly affect patterns of consumer and government spending, for example. The expected rate of technological development can also have a similar influence.
About the Author
