The Problems With Forecasting

Predicting The Future Is Rather Difficult

Contents

1. Introduction

2. Growth Rates: Demand and Production Capacity

3. Analysis and Problems With My Forecast

4. A Generalisation of Forecasts

5. Concluding Remarks

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Introduction

Today, there are some more points I wish to analyse from my forecast of lithium production and demand. The piece has little new information about energy, but I hope you’ll indulge me as I pick at my own forecast from last week. Upon reflection, there are problems with my forecast and some aspects that require more explanation. I’ll highlight these today.

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Growth Rates: Demand and Production Capacity

Green = Forecasted Value

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Analysis

These growth figures come from our exponential smoothing forecast last week.

There are a few conclusions I wanted to make clear:

1) In an exponential smoothing forecast, it is assumed that “more of the same” will occur. Hence both production and demand forecasts experience a sharp initial rise since that is what we’re experiencing currently, and this data is what the model is forecasted on.

2) The forecast uses a weighted linear sum of the past data. Hence the forecast reduces over time. The current high growth rates have less of an impact on the forecast over time. What this forecast does make clear is that the demand growth rate is rising sharply versus the production growth rate at the present day.