An economic forecast is a prediction about the direction of an economy over time, including its growth and level of employment. It is based on a variety of factors that are often both cyclical and non-cyclical, such as trends in international trade, interest rates and currency exchange rates. Many forecasters use their own economic theory to determine the general outline of a forecast but often rely on judgment as well, especially when special circumstances arise that may be unique and have an unusual effect.
Companies often use forecasting methods to make important decisions such as hiring, spending and investment. Some large businesses even employ in-house economists to focus on their particular industries and to help them make the best decisions about how the economy will impact their own operations. Government officials also rely on accurate economic forecasts when creating and implementing fiscal and monetary policies.
A variety of factors can influence the accuracy of a forecast, including the quality of the data used and how it is gathered. For example, some data may be dated and may have to be adjusted for seasonal effects. This can lead to inaccurate conclusions. Other factors that can impact the accuracy of a forecast include the method used to gather the data, such as survey or direct observation, and whether the data is aggregated or disaggregated.
Long-range economic forecasts are most difficult to make, because they depend on a number of factors that are both cyclical and non-cyclical. For example, population pressures and shifts in the age composition of the population are major influences on consumer and government spending patterns, as well as the pace of technological change that drives capital expenditures.