Economic Forecasts Struggle in a World of Uncertainty

Economic forecasting has become an increasingly challenging task in recent years, as the world has faced a series of unpredictable events. Infometrics chief forecaster Gareth Kiernan recalled that in 2019, forecasting was relatively straightforward, with outcomes evolving as expected. However, the past few years have been marked by unprecedented events such as the Covid-19 pandemic, inflation surges, geopolitical conflicts, and volatile share markets.

Kiernan noted that forecasting is particularly difficult when outcomes are heavily influenced by a few individuals, such as US President Donald Trump, whose decisions are often unpredictable. It is also challenging to forecast events with no precedent, like the Covid-19 pandemic, or when variables move outside historical boundaries, such as current share market behavior.

ANZ's Sharon Zollner pointed out that economic forecasts have often had poor track records, making weather forecasters look better by comparison. She questioned whether forecasts should be used to create policy, suggesting that rules based on current data might be more effective. Zollner praised the Reserve Bank for its humble and open-minded approach, contrasting it with the US Federal Reserve's more rigid stance.

Westpac chief economist Kelly Eckhold suggested that a return to a more predictable environment would require a return to the Washington Consensus, where nations work together multilaterally to solve issues rather than pursuing individual agendas. This cooperation, he argued, would help mitigate the uncertainty that has plagued economic forecasting in recent years.