Economic forecast are predictions about the future state of a country’s economy. They are generally based on macroeconomic variables such as gross domestic product (GDP), consumption, investment, interest rates and industry employment. These variables as a group are treated as having a presumed causal relationship, e.g. GDP drives investment, which leads to consumption and employment, etc.
The forecasting field is dominated by a variety of methods that attempt to predict the behavior of economic variables. These methods range from very simple statistical characterizations to complex models that try to capture the economic processes at work. The more advanced methods use a wide array of variables and time series to help construct a picture of the underlying economic processes, including those that drive short-term fluctuations such as business cycles.
Some variables are harder to forecast than others, such as financial series such as stock prices and interest rates that are subject to large changes over a very short horizon, while some are easier to predict such as labor force participation, which is relatively “sticky” and tends to respond slowly to changes in demand. Forecasting accuracy also varies depending on the current state of the business cycle, with forecast errors typically larger during recessions than expansions.
For emerging market economies, the current expansion remains fragile, as rising trade barriers and heightened policy uncertainty weigh on growth prospects. Although Mexico is the most directly impacted by these challenges, other Latin American economies are also vulnerable through their growing reliance on U.S. markets and their ties to high-income households in the United States for exports and remittances.
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