Having an idea of where the economy is heading is important for everyone from policymakers to businesses to individuals. But predicting the future isn’t easy. In fact, the accuracy of economic forecasts has been shown to vary based on factors such as the educational and working experience of forecasters, behavioral biases, and external events like political events or natural disasters.
In our latest Global Perspective, we are lowering our outlook on the global economy this year to 2.6 percent and 2.9 percent in 2025 and 2026-27 respectively as the impact of higher tariffs and elevated interest rates erodes consumer spending. Meanwhile, regional growth in the Middle East and North Africa is expected to strengthen based on an assumed stabilization of armed conflict and stronger oil activity. Downside risks include the possibility that trade barriers rise even further and that heightened policy uncertainty persists.
Forecasting the economy involves looking at data, such as a survey of a sample group, and creating a model that explains relationships between different variables. For example, economists use housing starts, an indicator that measures the number of new homes built over a certain period. They can then predict how this will impact the rest of the economy by estimating the number of new homes built in the following period.
Another metric that helps economists create models is inflation, which is measured by the consumer price index (CPI), or how much prices are increasing over a period of time. Economists use CPI to calculate trends in the cost of living, as well as to measure and track the strength of a country’s currency.