Economic Forecast

Economic forecast is a process of attempting to predict future values of economic variables such as gross domestic product, one or more interest rates, and various measures of employment, unemployment, and price inflation. There are many different methods of economic forecast, and in general, no single method is quantitatively more accurate than any other. However, this does not mean that a forecaster should not attempt to use a methodology if it appears to offer a good chance of yielding useful predictions.

The global economy faces severe headwinds, with the world’s growth expected to slow to near stall speed in 2025, and a persistently weak outlook in the subsequent years. This outlook is largely the result of trade friction, which has slowed investment and hiring and raised prices, limiting output. Other factors contributing to the slowdown are elevated policy uncertainty, rising labor market risks and constraints on immigration.

The forecasting literature has long recognized that there are financial and macroeconomic series with considerable predictive power for future output. A notable example is the yield curve, which tends to forecast GDP growth better than any other variable. It is important to note, however, that forecasting methods based on these financial and macroeconomic series require at least some knowledge of how these variables behave in the past and faith that their patterns of behavior will persist in the future. They thus cannot be considered purely statistical, and as such are often excluded from the rational expectations revolution.