An economic forecast is an estimate of future economic conditions. These estimates are used for a variety of purposes, including government budgeting and private investment decisions. An economic forecast can be based on a number of different methodologies, including econometric modeling and regression analysis. These models are based on the use of historical data to determine relationships between variables, such as income and consumption, or productivity and interest rates. Other methods include market research, business surveys and human behavioral studies.
The global economy is expected to slow slightly this year and next as tariffs weigh on trade, and monetary policy is tightened globally. However, a rebound in consumer spending should help balance these headwinds and keep inflation below target.
A key challenge for forecasters is to take into account non-cyclical factors that will influence the economy over a long period of time. For example, the increase in the population will alter patterns of consumption and government spending in most countries, as will the aging of this cohort. The impact of these changes is likely to be much greater over the longer term, and will depend on the rate at which new technologies can reduce the need for labor.
The accuracy of a long-range economic forecast depends on the ability to model and incorporate the effects of these non-cyclical factors. However, it is important to remember that research has shown that forecasters’ biases can also have a significant effect on the accuracy of their predictions. This is especially true when special current circumstances, such as a political crisis or natural disaster, impact on economic activity in ways that are not fully understood at the time of the forecast.