Economic forecasting in stormy weather
They say a butterfly flapping its wings in one part of the world can cause a hurricane in another, and everyone (people and countries alike) wants to be ready when this happens to the economy, so we’re not caught unawares. In this episode of CIENxCIEN, Ana Comellas invites Enrique Moral and Iván Kataryniuk to explain how macroeconomic projections enable us to anticipate the main economic variables, how accurate these forecasts are and how relevant they are in such a changing environment as the present one.
"I would say that, over the last few years, specifically since the pandemic, it has been the opposite: “what hasn't come as a surprise?” Because, for a few years now, virtually every quarter has brought with it new surprises, and on a very large scale."
How can you forecast the future economy when the only constant is change?
The economy, like the social and political climate, is dynamic. As well as being in constant flux, it is affected by what happens both within society and across the world. Fortunately, there are tools to help us predict what may lie ahead, like a type of “spoiler” for foretelling what will happen in the economy and making plans with greater certainty: macroeconomic projections.
How much will the economy grow? What about price levels? Will growth raise employment rates? And will it boost investment or are there headwinds at play? You might think economic variables can be forecast for the next few months or years using just data and mathematical models. But the projection exercise includes determinants that can only be factored in using expert judgement. From the global lockdown during the pandemic to the current geopolitical and trade tensions, everything has an impact on the economy in a completely interconnected world.
So what then is the point of trying to forecast the future of the economy? In this episode of CIENxCIEN, Ana Comellas explores the validity of economic projections with Enrique Moral and Iván Kataryniuk, Director and Deputy Director, respectively, of the Spanish Economy Analysis Department.
Uncertainty, particularly as regards trade, is currently at record high levels. Enrique Moral tells us that the last few years have seen “many surprises rewrite the rules of the game, virtually forcing you to rethink the exercise from scratch, develop new tools and take a completely fresh approach to the projections.”
Technological progress itself may have a significant impact on the economy.... or perhaps not. One case in point is artificial intelligence, which is bursting into all areas of our lives and raising big questions about how it might affect macroeconomic data. “We have studies envisaging outcomes ranging from very small impacts to a complete disruption within the global economy”, points out Iván Kataryniuk.
However, this lack of certainty makes it even more necessary to formulate possible scenarios with the help of economic models, to anticipate – and so be ready for – the changes they might entail for the economy of each country, household and firm.
