The focus is on understanding how economies change in response to a kaleidoscope of forces
Danish physicist and Nobel laureate Niels Bohr is credited with having said prediction is difficult, especially if it is about the future. This statement could not be more applicable than it is today given the significant changes to the functioning of the global economy.
Major supply-side factors can also disrupt the functioning of an economy. The Covid-19 lockdowns and Ukraine war are major supply shocks that have possibly changed the structure and functioning of the global economy forever. Many of the assumptions we took as given before the Covid-19 pandemic and Russia’s invasion of Ukraine are no longer valid. All need reassessment.
Policymakers have distorted how the economy should work. Phenomena such as negative interest rates and quantitative easing were anathema before the global financial crisis. Their introduction has changed how the global economy works, along with the basic assumption that inflation was never going to rise aggressively again and interest rates would remain low forever.
With this complexity globally the domestic economy also became more complex to forecast, simply because SA is a small, open economy that is greatly influenced by global developments. Being small does not mean less complex. It simply means the domestic economy is far more exposed to global shocks and responds more dramatically than a larger economy would. This unpredictability and complexity makes it even more difficult to make accurate economic forecasts.
The structure of the post-Covid SA economy has also changed. Seasonal factors in the data have been affected by a change in consumer behaviour, which is not yet captured in the economic models that are used for economic forecasting. Consequently, for some time to come many predictions are likely to miss the mark.
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