How to explain the puzzle of the world economy
da Vinci achieved this ambiguous effect with the use of sfumato, where he blurred the lines around Mona Lisa’s face. No matter how many times you look, you are unsure quite what is happening. The post-pandemic economy is like the Mona Lisa.
Each time you look, you see something different. After chaos in the banking industry, many analysts are now convinced that the world economy is heading for a “hard-landing" recession. Few seem to expect a “no-landing" scenario, in which the economy remains untroubled by rising interest rates—a fashionable opinion just weeks ago, and one which itself supplanted a common view late last year that a mild recession was certain.
In short: forecasting has rarely been harder. In the past year the range of analysts’ expectations for American quarterly GDP growth has been twice as wide as in 2019. The word “uncertainty" appears more than 60 times in the IMF’s latest global economic outlook, about twice as many as in April and October 2022.
When the banking panic struck, no one had the slightest idea what the Federal Reserve would do with interest rates in March—some investors expected a rate rise, some no change, some a cut—and the next few meetings look equally unpredictable. At the European Central Bank’s most recent monetary-policy meeting last month, Christine Lagarde, its president, was blunt about her institution’s role. “It is not possible to determine at this point in time what the path will be going forward," she said.
Official statisticians are struggling to understand the picture. As a matter of course they update their estimates of everything from GDP to employment as more data come in. But something profound has changed.
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