An economic forecast is a prediction of the performance of a country’s economy. It is generally reported in terms of gross national product (GNP), which is the sum value of all the goods and services produced within a nation. Almost all developed nations maintain sets of GNP data and make forecasts about them.
Most forecasts are based on the use of statistical models. A model combines the information in an economy with the data available to estimate the relationship between a variable, such as GDP, and some other variable, such as unemployment.
The model is then used to predict the future value of the dependent variable. Some models use a limited number of variables to make this prediction. Other models include a more extensive set of variables to capture the complexity of the economic system.
There are also judgmental methods that use expert judgment to fine-tune the output of a set of statistical models. These methods are often used in conjunction with one of the statistical models, in order to adjust for some unknown factor that may be affecting the results.
For example, the model might be adjusted to account for the likelihood that a change in the level of taxes will affect the amount of government spending, and this adjustment is then added to the GDP forecast.
Economic forecasts are widely reported in the media and used by businesses and investors. But these predictions can be misleading. In fact, a Berkeley Haas study that examined the longest-running poll of professional forecasters found that they tend to be too pessimistic and over-confident.
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