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• Economic Forecast
• Predict a variety of economic indicators, like money supply,
inflation rates, interest rates, among others.
• Technological Forecasts
• Predict rates of technological progress and innovation.
• Demand Forecast
• Predict the future demand for a company’s products or services
• However, forecasting is a not purely science. Not all factors can be observed
and/or measured. This is when forecasting becomes an art. Other qualitative
methods are then employed – e.g., Delphi method.
• Not all economists and financial analysts are forecasters. But all forecasters
employ statistical methods.
UNPREDICTABLE
Forecasting
Methods
Qualitative Quantitative
Time –
Executive Market Sales Force Delphi Explanatory
Series
Opinion Survey Composite Method Forecasting
Models
Examples:
- Predicting the speed of passage of a set of amendment to the LGC.
- Forecasting the long-term effects of technology on the consumption
of oil.
Explanatory
Forecasting
Time Series
Forecasting
BLGF Data Management and Analysis (DAMA) Training
Explanatory Forecasting
(Quantitative Forecasting Techniques)
• Time series analysis accounts for the fact that data points
taken over time may have an internal structure (such as
autocorrelation, trend or seasonal variation) that should be
accounted for.
Trend Projection • Uses the least squares method to fit a straight line to the data
New forecast = Last period’s forecast + α(Last period’s actual data – Last period’s forecast)
(this box contains all you need to know to apply exponential smoothing)
Ft = Ft-1 + (At-1 – Ft-1) (equation 1)
Ft = At-1 + (1-)Ft-1 (alternate equation 1 – a bit more user friendly)
Where is a smoothing coefficient whose value is between 0 and 1.
Forecast include a portion of every piece of historical data. Furthermore, there will be
different weights placed on these historical values, with older data receiving lower
weights.
This equation can be used to forecast for any year into the future. For example:
www.blgf.gov.ph
What is growth rate?
Where:
X = is a variable (e.g., Total Regular Revenues, etc.)
t = is the time or the year (e.g., 2017)
t-1 = is the time of the year less 1 year or 1 year ago
(e.g., 2017 - 1 = 2016)
Growth Rate for 2016 = [(2016 ARI – 2015 ARI) / 2015 ARI) x 100
= [(2,000,000,000 – 1,500,000,000)/1,500,000,000] x 100
= [(500,000,000)/1,500,000,000.00] x 100
= [0.333] x 100
= 33.3%
In talking about increasing and decreasing growth rates, one should not be
confused between this and decreases in the values of variables.
Both increasing and decreasing growth rates mean that the value of the
variable in increasing but faster in periods where the growth rate is
increasing and slower in periods where the growth rate is decreasing.
• Analysts can also take growth rates from a set of years and
get the simple average which is referred to as the Average
Annual Growth Rate (AAGR).
• The AAGR for simple growth rates is simply the sum of all
growth rates in a specific period (e.g., 2014-2016) divided by
the total number of growth rates (e.g., 3).
• The simple AAGR assumes that the growth rates for each year are of
equal importance and no year’s output or value has substantially
affected the direction of growth. This is why the growth rates are
simply summed up and divided by the total number of growth rates.
Where:
Weighted AAGR(t…t+z)= Average Annual Growth Rate for a period
X = Variable
t = First year (e.g., 2011)
t +1 = Year 2 (e.g., 2012)
t+2 = Year 3 (e.g., 2013)
t+z = Final, Last or Terminal Year
GR = Growth Rate
∑Xt..z = Sum of the values of X or ∑Xt..z = Xt + Xt+1 + Xt+2 + ……+ Xz
www.blgf.gov.ph