Economic forecasting in the run-up to and during recessions is particularly challenging. An analysis of the Federal Reserve of Philadelphia’s survey of professional forecasters shows that, since 1968, forecast errors during recessions are significantly higher than during non-recession periods. Moreover, forecast errors during recessions are predominantly positive, so forecasts tend to be too optimistic, even if they concern the next quarter. At the current juncture, there is broad consensus, if not unanimity, that downside risks to growth dominate due to the multiple headwinds and uncertainties. The historical forecast record is another reason to be mindful of these risks.
Our different uncertainty gauges are complementary, in terms of scope and methodology. Starting top left and continuing clockwise, US economic policy uncertainty based on media coverage has been on a rising trend over the past twelve months. This is related to the policy tightening by the Federal Reserve. The latest observations however do not show a clear trend.
Disruption in global trade has continued to abate. Despite this, there could still be major trade friction this winter, in addition to the direct repercussions of the war in Ukraine. China is facing a record rise in Covid-19 infections, and its Zero-Covid policy has shut down several plants in Henan province, which is home to the production lines for major global technology groups.
Between 17 and 23 November, 2.9 million new cases of Covid-19 were recorded worldwide, an increase of 13% on the previous week. This is the second consecutive week with an increased number of infections. All the regions of the world are affected, with South America notable for a significant resurgence in cases.
