Reviewed by Sep 30, 2020| Updated on
Economic forecasting is the process of making economic predictions. Projections can be produced at a high level of aggregation, for example, GDP, inflation, unemployment, or fiscal deficit or at a more disaggregated level, for particular sectors of the economy, or even for specific companies.
Several organisations are involved in economic forecasting: national governments, banks and central banks, analysts, and private sector agencies, such as think tanks, companies, and international organisations, such as the International Monetary Fund, the World Bank and the Organisation for Economic Co-operation and Development (OECD). Many forecasts are produced annually, but many are more frequently updated.
Usually, the economists consider uncertainties (incidents or factors that might cause the outcome to differ from their initial estimates). Such uncertainties help to explain the reasoning used to arrive at the final forecast figures. Economists use commentaries along with data visualisation resources, such as tables and maps to convey their forecast.
A variety of information has been used in the preparation of economic forecasts in an attempt to increase accuracy. Everything from the macroeconomic, microeconomic, future market data, machine-learning (artificial neural networks), and human behavioural studies were all used to achieve better predictions. Forecasts are used in a variety of applications.
Governments and businesses are using economic forecasts to help them assess their policy, multi-year plans, and next year budgets. Stock market analysts use forecasts to estimate the valuation of a company and its stock.
For centuries, economic forecasting has existed around. Nevertheless, it was the 1930s Great Depression that gave birth to the levels of analysis that we see today. After this disaster, greater emphasis was put on understanding how the economy functions and in which direction it is going. That led to a richer array of statistics and analytical techniques being developed.