ECONOMIC FORECASTING AS A TOOL FOR ECONOMIC GROWTH AND FINANCIAL STABILITY: BENEFITS, LIMITATIONS, AND BEST PRACTICES

Abstract

Economic forecasting supports decision-making in government, monetary policy, and finance by forming expectations about key macroeconomic indicators such as output growth, inflation, labor-market conditions, and interest rates. This article examines how forecasting contributes to economic growth and financial stability, while also identifying why forecast errors increase during periods of structural change and major shocks. The study applies a qualitative desk-based approach and a structured review of authoritative institutional sources (IMF, World Bank, central banks) and forecast evaluation evidence (including documented forecast errors during crisis periods). The results suggest that forecasting improves policy planning and private-sector investment primarily through the uncertainty-reduction channel and expectation management, but its reliability is constrained by data revisions, model uncertainty, and the unpredictability of tail events. The paper argues that forecasting is most effective when combined with transparent communication, scenario analysis, and stress testing, which help policymakers and financial institutions manage downside risks and avoid overreliance on point predictions. The article concludes with best-practice recommendations aimed at improving the resilience and policy relevance of forecasting frameworks in a high-uncertainty global environment.