The process of developing an economic forecast involves gathering data inputs, determining historical relationships between variables, and making assumptions about future developments. Many of these assumptions are based on well-established economic theories and standard statistical techniques. However, judgment also plays a key role in the final outcome of a forecast and can be influenced by the individual forecaster’s personal theory about how the economy works. This can lead to subjective or biased projections.
For example, a forecaster’s theory about what drives business investment may determine how much weight to give to the latest data on capital expenditure plans. Those plans can be volatile and can change quickly, potentially affecting the final outcome of a forecast.
An important variable in a long-range economic forecast is the rate at which productivity (output per worker) increases. Using historical trends, expected technological advances and other factors, forecasters estimate the expected future rate of productivity growth. This can be very difficult to predict, as it is heavily influenced by current technology and other factors that are difficult to understand.
Global economic growth is expected to slow this year and next, reflecting rising trade barriers and elevated policy uncertainty. In addition, lower-than-expected oil prices and a re-escalation of armed conflicts are potential risks to the outlook. In order to boost growth, a global reset is needed that includes stronger cooperation and restored fiscal responsibility. Achieving this goal will require resolving tensions and moving beyond protectionism.
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