How accurate is economic forecasting?

Economic forecasting is a difficult game – if you get it right, you’ll not only receive accolades but it also a potentially lucrative business as well. However, get it wrong and you’ll never be able to take it back. The past century is riddled with grand predictions from economists about the state of national economies and the future of the world. It’s evident that some forecasts have aged much worse than others, but just how accurate is modern economic forecasting? 

Here, we’ll take a look at some of the most famous forecasting blunders, as well as the accuracy of leading economic organisations today.

Economic forecasting blunders

1. “Japan As Number One” was initially released in 1979 by an acclaimed social scientist who worked out of Harvard. Ezra Vogel predicted that the US economy would soon be surpassed by Japan was not unpopular at the time.
2. Irving Fisher, one of the great American economists believed that equities had reached a “permanently high plateau”, just two weeks before stocks plunged in 1924.
3. One of Goldman Sachs chief strategists predicted that the S&P 500 would hit 1,675 by the end of 2008 back in December 2007. In reality it ended well below 900.
4. Richard Branson believed back in 2010 that we would face another kind of crunch – the oil crunch. In fact, the price of oil was actually lower in 2015.
5. Alan Greenspan – a former Fed chair – warned back in 2007 that the world would require ‘double digit interest rates’ to help control rising inflation. Since then, rates have been near zero for the vast majority of the time.

Economic forecasting as a flawed science

One of the main problems with economic forecasting is that a small and seemingly insignificant change in just a few variables can have a massive impact on predictions, which makes economic forecasting impossibly complex.

While there have been many blunders when it comes to accurately predicting economic outlook, nowadays the leading economic organisations have delivered impressively accurate predictions for the UK’s economy. Surprisingly, it wasn’t just city forecasters making accurate predictions for the UK’s economic outlook between 2015 and 2017, as three non-city organisations were also particularly precise in predicting the GDP and CPI figures.

We’re sure it’s no surprise that Morgan Stanley, one of the leading global finance services, was particularly accurate in predicting the GDP Growth Rate in 2016. In fact, there average was just 0.15% off the actual figures. Similarly, non-city forecasters gave highly accurate predictions. Non-city organisation Oxford Economics was the top performer in 2017 with just 0.1% off the actual figures of both GDP and CPI Inflation.

Using economic forecasting will help you better predict the UK’s economic outlook.  This can be used to inform your decisions whilst trading on the Forex Market.

As forex trading is a truly 24/7 market, with prices moving constantly, it’s important for traders to be aware of expected economic outlook. You can keep an eye out on the most popular markets on the trading platform etxcapital.co.uk and forecasts on tradingeconomics.com.