STREET DOGS

Adapted from an article at FiveThirtyEight.com

Here’s something that won’t come as too much of a surprise … forecasting has become more unreliable. As one writer put it: “The Covid-19 crisis is helping the ‘dismal science’ live up to its name.”

In April, Goldman Sachs predicted that advanced economies would shrink by about 35% in the second quarter of 2020 compared with the first three months. Absa predicted SA’s GDP would contract by 23.5%. Both will probably turn out to be wrong. What we don’t know is how wrong.

“As forecasters, we have to approach this with a heavy dose of humility,” says Gregory Daco at Oxford Economics, “because we just don’t know how this will evolve. One day we could be assuming a 10-12-week lockdown, the next day we could be looking at a lockdown that lasts through September.”

Forecasters are pretty much in agreement that the next months are going to be full of pain — but there’s a lot less consensus about how long it will take the economy to recover. Goldman Sachs is predicting an “unprecedented” recovery in the second half of the year. Many economists are less optimistic, warning that the return to normal could be far slower.

Looking to history for guidance isn’t much help. The last recession was connected to a financial crisis; this one is a public health crisis.

Knowing we’re already in a recession doesn’t make forecasting any easier either.

The trajectory of this crisis is harder to predict because it’s dependent on so many external factors — for instance, how many small businesses will be able to reopen when the lockdowns end.

That doesn’t mean forecasts are useless, just that it’s best to think of them as a range of possible futures rather than a reliable vision of what will happen.