An economic forecast is an estimate of the future path of an economy. It is a key input into the decision making of central banks, fiscal authorities and private sector agents. Economic forecasts can be produced using a wide variety of methods. At one end of the spectrum there are judgmental methods that rely on the expertise of individual forecasters to fine-tune the output from a suite of models. At the other end are dynamic stochastic general equilibrium (DSGE) models that use modern economic theory to produce a forecast disciplined by the principles of modern macroeconomics. Most countries and some regions have a survey of forecasters that publishes the average and median forecasts.
The conceptual characteristics of an economic forecasting methodology transcend the specifics of any particular forecasting model. Essentially it is an attempt to infer from patterns of behavior that have been observed in historical time series data the expected behavior of the series over the forecast period. This requires an immense amount of knowledge concerning the historical patterns and a large measure of faith that these patterns will persist.
Indicators like stock market prices are notoriously difficult to predict and can be very volatile. But other indicators can be easier to predict over short horizons such as interest rates. A forecaster’s own theory about how the economy works dictates which of these indicators to pay attention to, and therefore can bias the results. For example, a forecaster that believes that business activity is determined by the supply of money may tend to pay more attention to consumption expenditures than to investment expenditures.