Strong belief in the quality of central bank economic forecasts enhances monetary transmission and hence the effectiveness of monetary policy. In the current environment of rising inflationary pressures, the belief of market participants that central banks have better forecasting skills should limit the rise in inflation expectations. Research casts doubt on whether such a belief is warranted. Although Fed staff projections tend to have lower forecast errors than private sector forecasts, the difference has narrowed since the 1990s. In the Eurozone, forecast errors for inflation of the Eurosystem/ECB staff projections were equal to those of the Survey of Professional Forecasters.
The Pulse for May shows that the economy is slowly recovering from the sharp downturn caused by the coronavirus pandemic. Unlike in previous months, the recovery is no longer limited to manufacturing and construction, but is now broadening to services.
The Italian economy is continuing to improve, as shown in the latest gains in our Pulse. Industrial activity, which had already enjoyed a significant upturn over the winter, strengthened further this spring: the manufacturing PMI reached 60.7 in April, the best reading on record.
The double whammy of Brexit and the health crisis has hit the economy hard. In 2020, GDP contracted by 9.8%, the weakest performance by a G7 country and the UK’s worst year since 1920. In the first quarter of 2021, GDP fell by a further 1.5%, due to lockdown measures introduced to tackle the second wave of the epidemic and despite considerable fiscal support
With the fall in Covid-19 cases and rising vaccination levels, retail and recreation mobility continues to rise. Only Belgium saw a decrease last week, but its level remains the highest in Europe. In the US, mobility is almost back to normal. However, it is continuing to decrease in Japan, with the seven-day moving average down 22% compared with the reference level.
