An economic forecast is a prediction of how the economy will perform over time. The term can refer to a forecast for the total economy or for individual components such as consumer spending, business investment or government spending. Economic forecasting has a long history and many techniques are used to try to make accurate predictions.
One reason for the interest in economic forecasting is that companies can use it to help them plan for future activities such as hiring new employees or investing in new equipment. Forecasting can also help businesses lower costs by allowing them to anticipate the amount of product to be produced so that they do not have to waste money on producing too much.
The quality of economic forecasting varies widely. The accuracy of economic forecasts is affected by the number of assumptions made and the complexity of the models employed. Economic forecasts are important inputs for government officials who set fiscal and monetary policy. Because politics is highly partisan, many rational people regard forecasts produced by governments with healthy doses of skepticism.
The quality of economic forecasts is also affected by the accuracy of the historical data that is used to create them. It is difficult to find data that accurately predicts the future, and even if it were available, the process of interpreting and applying it requires skill. Fortunately, there is a good deal of information on past trends in economic data that can be used to improve the accuracy of current and prospective economic forecasts.