W.Mona Lisa hat are you doing? The subject of one of the world’s most famous paintings appears to be smiling. When I look at her again, her smile disappears. She next time she reappears is a different kind of smile. Leonardo da Vinci was sfumato, blurred the lines around the Mona Lisa’s face. No matter how many times I look at it, I still don’t understand what’s going on.
The post-pandemic economy is like the Mona Lisa. Every time you look at it, you see something different. Following the turmoil in the banking industry, many analysts now believe the global economy is headed for a “hard landing” recession. Few people seem to foresee a “no landing” scenario in which the economy is not plagued by rising interest rates. This was a trendy opinion just a few weeks ago, replacing the general view that a mild recession is certain in the second half of 2022.
In short, prediction is rarely difficult.Range of US quarterly analyst forecasts over the past year gdp The growth rate has doubled since 2019. The word “uncertainty” imf‘s latest global outlook, nearly double the April and October 2022 editions. When the financial crisis hit, no one could have predicted what the Federal Reserve would do with his March interest rate. Some investors expected a rate hike, some expected no change, and some expected a rate cut. At the European Central Bank’s latest monetary policy meeting last month, Governor Christine Lagarde spoke candidly about her institution’s role. I was.
Official statisticians are having trouble understanding the situation.Naturally they update all their quotes gdp But something changed. gdp The Eurozone revision is four times the normal rate. In March, the UK Bureau of Statistics announced some significant revisions. The release shows that actual business investment is in line with pre-pandemic levels and not below the once believed 8%. Last month, Australian statisticians cut their estimates of productivity growth for the third quarter of 2022 by more than half. That year, the U.S. Bureau of Labor Statistics (bls) corrected the estimate of nonfarm payrolls (not seasonally adjusted) to be 59,000 per month between the first and third estimates, compared to 40,000 in 2019.
what’s going on? Perhaps the world is simply more volatile. Last year Europe experienced its biggest land war in 70 years, supply chain disruptions, energy crises and banking turmoil.
But deeper structural changes are also underway. The first concerns the chaos of covid-19. The world plummeted from collapse to boom as lockdowns came and went. This wreaked havoc on the “seasonal adjustment” common to most economic indicators. In February bls Monthly rates are much more difficult to interpret as the factors applied to inflation have changed. Annual core inflation for the final quarter of 2022 he “risen” from 3.1% to 4.3%. Inflation in the Eurozone is also more difficult than usual to understand. According to Kamil Kovar of consultancy Moody’s Analytics, core monthly inflation was at a low of 0.2% and a high of 0.4% in March, depending on seasonal adjustments.
The second change concerns the sample size. The pandemic has accelerated the trend of an increasing proportion of people not responding to official surveys. In the United States, the survey response rate used to estimate vacancies has dropped from his nearly 60% just before the pandemic to about 30%. When COVID hit, the response rate to the UK workforce survey was about halved. Some businesses were closed during the lockdown. And people got out of the habit of filling out questionnaires. Mistrust of the government also grew, and people were reluctant to help statisticians.
A lower response rate probably increases the volatility of the data. It can also lead to prejudice. Those who stop responding to surveys appear less prosperous than those who continue to do so, misleadingly inflating their income. Census Bureau’s Jonathan Rothbaum said his real median US household income growth from 2019 to 2020 was 6.8%, not his originally reported 6.8%, but after correcting for non-responses. He suggests it was 4.1%. Since 2020, non-response continues to push income statistics up by about 2%. A report by his Omair Sharif from consultancy Inflation Insights suggests that correcting for “non-response bias” may also have contributed to the large revisions in recent US earnings data.
A third reason for confusion comes from the discrepancy between “hard” and “soft” data (objective measures such as unemployment rates and subjective measures such as people’s future expectations). The two types usually work synchronously. Now they are far apart. A “soft” measure looks like a recession. “Hard” measures indicate decent expansion. This divergence may reflect people’s moodiness about inflation. Prices in the affluent world are still up 9% year-on-year.
Investors and statisticians will be able to better understand the global economy during times of volatility and inflation. As the impact of the pandemic fades, so does the distortion to the seasonal adjustment. Economists have already made progress in incorporating alternative data into their forecasts, helping to overcome the problem of declining responses. But this is a small consolation for governments and businesses that need to make decisions now, or people trying to keep up with the news.Don’t be surprised if the global economy holds up Sufumata Still a while. ■
https://www.economist.com/finance-and-economics/2023/04/17/why-the-global-economy-is-becoming-ever-more-confusing Why the global economy is in more turmoil than ever