An economic forecast is a prediction of the future level of output in a nation. Almost all developed nations make such projections, which are critical inputs into policy decisions by central banks and fiscal authorities. These projections can range from a simple estimate of gross domestic product (GDP) to sophisticated dynamic stochastic general equilibrium (DSGE) models that incorporate modern economic theory.
Long-range economic forecasts are particularly difficult, since many of the underlying factors are not directly observable. These include assumptions about war and peace; expectations of new technological discoveries; and demographic pressures. The demographic pressures are particularly important, because the number of people entering the labour force and the rate at which they are replaced by younger workers determines the growth of total output.
Short-range forecasts are easier, because cyclical factors tend to be less influential. Nevertheless, good short-range forecasts begin with a thorough analysis of the overall economy, and the analysis must take into account the particular factors that are most important for an individual industry. For example, lumber sales may correlate fairly well with housing construction; and sales of durable consumer goods such as automobiles often depend on the availability of basic materials.
Global growth is projected to slow sharply this year due to a rise in trade barriers and heightened policy uncertainty, with only a tepid recovery in 2026-27. In a worst-case scenario, a protracted trade war would weaken global demand, resulting in slackening consumer spending and slower growth in services. The outlook for low-income countries remains grim, with per capita income still falling too far to recover from pandemic losses and reduce extreme poverty.
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