Economic forecasts are provided by various municipal and non-city forecasters, which are then picked up by the trade. But how do they generate this data and how accurate is it?
The most important thing to remember is that economic forecasting is far from an exact science. Even the most experienced forecasters can make mistakes, but with more technology and experience they can be more accurate.
Economic indicators
There are various indicators these companies use to inform their forecasts. These statistics are a starting point, although there are many more factors to take into account as well. Not all of them carry the same weight, as some will have a more drastic impact on projections than others.
This includes gross domestic product, the consumer price index and even the price of crude oil. Some of these numbers can be tracked daily but others are released more periodically. This starts the process of economic forecasting, but there’s a lot more that can be involved too!
Using a timetable of these indicators throughout the year, forecasters can plot which way the economy will move. Of course there are outside and surprising factors that can also have a much greater effect, but these cannot be taken into account in advance.
How accurate is it?
Over time, the margin of error between estimates and actual events is getting smaller. Partly because of the technology we can use today, which is far more accurate than most human calculations. Even artificial intelligence can be used to more accurately plot these trends.
Morgan Stanley and Commerzbank are among the city’s most accurate forecasters, getting less than one percent of the final figure for many forecasts. A study from ETX Capital investigated the forecasts when compared to the reality provided by three major city forecasters. They found Capital Economics to be within 0.1 percentage point of the final result, which is a very close view.
Why is Economic Forecasting Important?
If you’re not heavily involved in any sector of the economy, you may wonder why these forecasters place so much emphasis on it. They can be very useful in a variety of different scenarios for traders, political experts and others. Can predict the economy can even build trust in it, as being able to predict the economy means it’s easier for traders to get involved in it.
When it seems that some of these fortunetellers are wrong more often than right. While this may occasionally occur, the actual forecast itself is important. By comparing forecasts from different companies, we can begin to build a clearer picture of what’s going on with our economy. Using data from each provides a more accurate overall view, which investors, bankers and others can then use.
The next time you look at the economic forecast, you will be able to tell where the numbers have come from and how you can use them to your advantage in the future.
