Weekly Business Insights from Top Ten Business Magazines | Week 293 | Shaping | 1

Extractive summaries of and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 293 | April 21-27, 2023

How to explain the puzzle of the world economy

The Economist | April 17, 2023

Listen to the Extractive Summary of the Article

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.

What is going on? Perhaps the world is simply more volatile. In the past year Europe has seen its biggest war in seven decades, supply-chain snarl-ups, an energy crisis and banking panic. The rest of the rich world has only been a bit more stable.

Yet there are also deeper changes at play. The first relates to covid-19 disruptions. The world lurched from crashing to soaring growth as lockdowns came and went. This has played havoc with the “seasonal adjustments” common to most economic numbers.  The second change relates to sample sizes. The pandemic accelerated a trend in which a growing share of people fail to respond to official surveys.  The third reason for confusion stems from the disparity between “hard” and “soft” data—objective measures such as the level of unemployment, and subjective measures such as people’s future expectations.  Normally the two types move in sync. Right now they are far apart. “Soft” measures look recessionary. “Hard” measures point to a decent expansion. The divergence may reflect people’s grumpiness with inflation. 

3 key takeaways from the article

1. The post-pandemic economy is like the Mona Lisa. Each time you look, you see something different.
2. 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.  What is going on? Perhaps the world is simply more volatile.
3. Yet there are also deeper changes at play. Three are important: covid-19 disruptions played havoc with the “seasonal adjustments” common to most economic numbers; pandemic accelerated a trend in which a growing share of people fail to respond to official surveys, finally increased disparity between “hard” and “soft” data.

Full Article

(Copyright)

Topics:  Global Economy, Recession, Inflation