Economic forecasting

The Economic Outlook is the OECD's twice-yearly analysis of the major economic trends and prospects for the next two years.[8] The IMF publishes the World Economic Outlook report twice annually, which provides comprehensive global coverage.[9] The IMF and World Bank also produces Regional Economic Outlook for various parts of the world.[10]

There are also private companies such as The Conference Board and Lombard Street Research that provide global economic forecasts.[11]

The U.S. Congressional Budget Office (CBO) publishes a report titled "The Budget and Economic Outlook" annually, which primarily covers the following ten-year period.[12] The U.S. Federal Reserve Board of Governors members also give speeches, provide testimony, and issue reports throughout the year that cover the economic outlook.[13][14] Regional Federal Reserve Banks, such as the St Louis Federal Reserve Bank also provide forecasts.[15]

Large banks such as Wells Fargo and JP Morgan Chase provide economics reports and newsletters.[16][17]

The European Commission also publishes comprehensive macroeconomic forecasts for its member countries on a quarterly basis - Spring, Summer, Autumn and Winter.[18]

Forecasts from multiple sources may be arithmetically combined and the result is often referred to as a consensus forecast. Private firms, central banks, and government agencies publish a large volume of forecast information to meet the strong demand for economic forecast data. Consensus Economics compiles the macroeconomic forecasts prepared by a variety of forecasters, and publishes them on a weekly and monthly basis. The Economist magazine regularly provides such a snapshot as well, for a narrower range of countries and variables.

Econometric studies have demonstrated that the use of past errors of each original forecast to determine the weights assigned to each forecast in the creation of a combined forecast results in a composite set of forecasts that generally yield to lower mean-square errors compared to either of the individual original forecasts.[19] However, it has been found that the entry and exit of forecasters can have a substantial impact on the real-time effectiveness of conventional combination methods.[20] The dynamic nature of the forecasting combination and adjusting weighting techniques is not neutral.

There are many studies on the subject of forecast accuracy. Accuracy is one of the main, if not the main, criteria used to judge forecast quality. Some of the references below relate to academic studies of forecast accuracy. Forecasting performance appears to be time-dependent, where some exogenous events affect forecast quality. As expert forecasts are generally better than market-based forecasts, forecast performance depends on several factors: model, political economy (terrorism), financial stability etc.

In early 2014 the OECD carried out a self-analysis of its projections.[22] "The OECD also found that it was too optimistic for countries that were most open to trade and foreign finance, that had the most tightly regulated markets and weak banking systems" according to the Financial Times.[23]

In 2012 Consensus Economics launched its Forecast Accuracy Award, and each year publishes a list of winners who have most accurately predicted the final outcome of GDP and CPI for the prior year for over 40 countries. "Consensus Economics Forecast Accuracy Award"

In recent years, research has demonstrated that behavioral biases play a significant role in affecting the accuracy of forecasts. The education and working experience of forecasters influence the accuracy and boldness of their predictions.[24] Forecasting accuracy is also impacted by the forecaster's experience with high inflation rates.[25] Additionally, political events such as terrorism have been shown to influence the accuracy of both expert- and market-based forecasts of inflation and exchange rates.[26] This highlights the range of external factors and biases that should be considered when evaluating the accuracy of forecasts and making informed decisions.

The financial and economic crisis that erupted in 2007—arguably the worst since the Great Depression of the 1930s—was not foreseen by most forecasters, though a number of analysts had been predicting it for some time (for example, Stephen Roach, Meredith Whitney, Gary Shilling, Peter Schiff, Marc Faber, Nouriel Roubini, Brooksley Born, and Robert Shiller).[27] The failure of the majority of them to forecast the "Great Recession" caused soul searching in the profession. The UK's Queen Elizabeth herself asked why had “nobody” noticed that the credit crunch was on its way, and a group of economists—experts from business, the City, its regulators, academia, and government—tried to explain in a letter.[28]

It was not just forecasting the Great Recession, but also forecasting its impact where it was clear that economists struggled.

For example, in Singapore Citi argued the country would experience "the most severe recession in Singapore’s history". The economy grew in 2009 by 3.1% and in 2010, the nation saw a 15.2% growth rate.[29][30] Similarly, Nouriel Roubini predicted in January 2009 that oil prices would stay below $40 for all of 2009. By the end of 2009, however, oil prices were at $80.[31][32] In March 2009, he predicted the S&P 500 would fall below 600 that year, and possibly plummet to 200.[31][33] It closed at over 1,115, up 24%, the largest single year gain since 2003.[34] In 2009 he also predicted that the US government would take over and nationalize a number of large banks; it did not happen.[35][36] In October 2009 he predicted that gold "can go above $1,000, but it can’t move up 20-30%”; he was wrong, as the price of gold rose over the next 18 months, breaking through the $1,000 barrier to over $1,400.[36] Although in May 2010 he predicted a 20% decline in the stock market, the S&P actually rose about 20% over the course of the next year (even excluding returns from dividends).[37]