An economic forecast is a detailed analysis of economic trends and an estimate of how these trends may change in the future. It can be used by businesses to make informed decisions regarding business strategies and operations. An economic forecast is a complex process that requires many factors to be taken into consideration.
For example, when predicting consumption expenditures within a given time frame, the forecaster will typically state that the values of certain variables are assumed rather than explicitly predicted. This is because the underlying relationship between those variables cannot be known, and thus a model must make assumptions about these relationships in order to provide an accurate forecast.
An important factor in determining an economic forecast is the ability to determine which factors will have a significant impact on future growth and which will have a less substantial effect. For example, higher interest rates discourage borrowing and investment and slow economic growth. Conversely, lower interest rates encourage more borrowing and investment and speed economic growth. Global events and geopolitics can also significantly impact economic trends.
The most common method of making an economic forecast is statistical in nature, and relies on the representation of the underlying economic behavior in terms of a series of observations over time, seen as a statistical time series. Operationally, this methodology does not require that the person making the prediction have any particular knowledge about why the underlying economic processes behave in a particular way, but does require that the forecaster possess an immense amount of acquired knowledge concerning the representation of these patterns and not a little faith that these patterns will persist.