Effects of global uncertainty on economic forecasts

Expectations play a major role in the impact of economic uncertainty, for example triggered by natural disasters, wars or political upheaval. For example, companies make hiring and investment decisions based on expectations about future economic developments. If uncertainty makes it difficult to predict, companies generally react with a wait-and-see approach and restraint.

The article "Expectations and the Transmission of International Uncertainty: Evidence from Cross-Country Survey Data" examines how global uncertainty influences experts' expectations about economic growth, inflation, interest rates and the exchange rate. The authors, Joscha Beckmann and Martin Geiger, analyze survey data from 33 countries.

They find that global uncertainty has a significant negative impact on expectations of macroeconomic developments in the respective countries. The macroeconomic effects of global uncertainty shocks tend to be overestimated, which could reinforce the effect of uncertainty shocks via the expectations channel. In addition, uncertainty leads to large discrepancies in experts' economic forecasts.

The study also shows that there is great country-specific heterogeneity in the impact of global uncertainty. This is related to country-specific policies such as the exchange rate regime (fixed versus flexible exchange rates), the openness of capital markets and the flexibility of monetary policy.