The Use and Abuse of Economic Forecasts Available to Purchase

Economic forecasting has become big business with over 40 institutions producing forecasts in the UK alone. Such forecasts are widely reported in the media and businesses typically subscribe to the output of at least one forecasting agency and use it for planning production and investment over future time periods. The value of forecasts is, however,questionable for actual out‐turns rarely coincide with predictions,particularly at those times when economic performance is deviating from trend. These, of course, are the times when forecasts are most needed. One reason for using them may be that business people believe the results or at least that there is no better alternative in a world in which they must have something as a basis for rational planning. In either case, they are probably wrong and many economists themselves are now exploring alternative approaches. Concludes that, in business,macroeconometric forecasts can easily be overvalued and should be used with care. They are certainly no substitute for fundamental scenario planning or indeed for short run risk management strategies.