Economic forecast is the prediction of future economic trends, such as inflation or GDP growth. It is often done by using data analysis techniques and mathematical models, but may also involve expert opinions and surveys. Economic forecasting is highly subjective and results can vary greatly between economists, whose projections are heavily influenced by what type of economic theory they subscribe to. For example, one economist might believe business activity is mainly determined by the supply of money while another may believe hefty government spending is bad for economic performance.
The most common economic forecasting methods are based on time series analysis and regression models, which are largely statistical in nature. However, there are also a number of more qualitative techniques, such as Delphi method or market surveys (useful when data availability is limited).
Most economic forecasts are based on the assumption that the relationships between different variables are linear. Nevertheless, non-linearity can exist in some data sets, and non-linear models can improve forecasts compared to simple linear ones. Furthermore, many studies have shown that the largest errors in time series are incurred around business cycles, when the linear relationship is likely to break down.
A large number of professional forecasters are employed in companies and research institutes, specialized in various branches of economics. They are often tasked with providing economic predictions to investors and policymakers. They are usually required to follow strict procedures, including rigorous data collection and verification, and to publish their findings. In addition, some of them participate in the Blue Chip survey, which has been conducted since 1976 and includes a wide range of macro data, such as real GDP growth.
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