An economic forecast is a prediction about the future of the economy. It can be made using a variety of methods and techniques. These methods can range from ones that seem to make no sense at all, to those that are mathematically defensible and grounded in economic theory.

Businesses and governments use economic forecasts to plan their future processes and policies. Many large businesses have their own in-house economists to help with this process, while government officials rely on the work of professional economists and statistical agencies to create sound fiscal and monetary policies.

In general, an economic forecast attempts to identify the trends and patterns that drive the economy and try to predict their future direction. This can be done by looking at past data and comparing it to current data, or by using models that are designed to identify these patterns. There are many different types of models used to make economic predictions, and these can range from ones that are very simple, such as a linear regression, to those that are more complex, such as dynamic stochastic general equilibrium (DSGE) models.

Economic predictions are often subjective, Loungani notes, and are heavily influenced by the type of economic theory the forecaster buys into. This can lead to biases and projections that are too optimistic or too pessimistic. For example, one economist may believe that hefty government spending is bad for the economy, while another might believe that it helps. This can mean that the two economists will pay attention to different indicators, which can lead to biased projections.