Every three months, the International Monetary Fund publishes forecasts for global economic growth. Its latest report, released on Tuesday, predicts global growth will nearly halve this year, falling from around 6.1% in 2021 to 3.6% in 2022.
But it’s a very difficult time to be in the business of economic forecasting.
Imagine an elephant. He stands in the dark, surrounded by people touching him, trying to figure out what it is.
“And they know they’re not getting the full picture. So they know they’re uncertain,” said Claudia Sahm, a former Federal Reserve economist who now works at the Jain Family Institute. That’s what the economic forecast looks like right now, she said.
“So we’re at the point where this elephant started running. So not only are we not getting the full picture, but we can’t even fully follow this thing.
Tuesday’s IMF report is peppered with caveats. He says his forecast assumes the war in Ukraine stays within that country’s borders, Russia’s energy sector is spared further sanctions and the pandemic does not worsen.
IMF economist Malhar Nabar is one of the authors of the report. Uncertainty has weighed on its forecast since the start of the pandemic. Now it’s war.
“War – and widespread sanctions against Russia – is something for which we don’t really have a historical precedent in recent memory,” he said.
It could also skew the report’s forecast for global inflation this year, which the IMF pegs at 5.7% in advanced economies and 8.7% in emerging economies. Ukraine is a major producer of commodities like wheat, which it cannot grow or export during the war. Thus, increases in commodity prices could stimulate inflation.
Gregory Daco, chief economist at Ernst & Young, also makes economic forecasts. He said to be humble.
“There will most likely be developments that deviate from your basic assumptions.”
And then be nimble enough to incorporate these unexpected developments into your forecasts.
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