What is an Economic Forecast?
The term economic forecast refers to the attempt by economists and other analysts to predict trends in the economy and to develop methodologies for predicting future economic conditions. The concept most commonly forecasted is Gross Domestic Product (or its equivalent in other countries, such as Gross National Product) from national income accounts. GDP is the monetary value of all the finished goods and services produced within an economy’s borders in a given period, adjusted for price changes.
Economic forecasting techniques vary widely, from the use of models to simple judgment. As a general rule, economic forecasts based on judgment cannot be subjected to the same rigorous checks that may be applied to those made by the use of other methods. Judgment, however, can be a valuable tool in economic analysis and, when used carefully, can produce more accurate results than purely statistical methods.
Moreover, when making long-range forecasts, special factors must be taken into consideration. These can include population pressures (as in the well-known argument put forth by Thomas Malthus at the beginning of the 19th century that bare subsistence would be humanity’s inevitable lot, since food production increases arithmetically while population grows exponentially). In addition, special circumstances such as armed conflict or natural disasters can have a major impact on the economy. Likewise, the adoption of new technologies or other changes in financial institutions can also influence the economy. In these cases, the underlying economic principles that are being considered must be interpreted by judgment.
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