A economic forecast is a broad measure of the overall state of the economy, usually gross domestic product (GDP). It covers the output of all activities in a nation’s economy including consumption, government spending, business investment, and net exports. Almost all developed nations maintain national income accounts and produce GDP forecasts.
A wide variety of methods and tools are used to make economic forecasts. Some rely on models which are based on mathematical formulas or other techniques from statistical analysis and economic theory. Others are based on expert judgment. Generally, the best forecasts are produced when the models are fine-tuned by expert judgment to reflect specific current circumstances. This is particularly important when unusual circumstances occur that are not accounted for in standard statistical model assumptions such as the impact of a war or other catastrophe on foreign trade.
In the long run, a forecast for total economic activity is influenced by demographic pressures and assumptions about future growth in the number of people who are working or will be available to work in the next period. In addition, a forecast is affected by the rate of change in productivity. This depends on the rate of technological discovery as well as the pace at which existing technology is applied to new fields.
Almost all developed countries maintain sets of GDP forecasts and publish them regularly. This allows for a comparison of the forecasts from different sources. The results of such comparisons can be informative and may lead to refinements in the use of models for GDP forecasting.
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