Forecasting has never been easy and economists have been mocked in the past for their chequered history of predicting economic outcomes. The Covid-19 crisis has thrown a curveball that has resulted in a 'sudden and massive divergence' in economic growth projections. Instead of discounting the reliability of these forecasts, we should understand how economists got there and what risks they see standing in the way of a desperately needed economic recovery.
Economists have faced extraordinary challenges in predicting the likely impact of Covid-19 on global and local economies, both in terms of the extent and length of the fallout and subsequent recovery. Forecasts that are usually clustered in a relatively tight range around the median have widened to unusual extremes.
At the end of April 2020, the gap between the most optimistic second-quarter US growth forecast (-8.5%) and the most pessimistic (-65%) was a staggering 56.8 percentage points, according to a recent Harvard Business Review article exploring why economic forecasting is so difficult during the Covid-19 pandemic. Say authors Arne Pohlman and Oliver Reynolds: "The spreads observed in recent weeks are by far the widest recorded since we started covering the US a decade ago."
Pohlman and Reynolds attribute...