A series of shocks to the European economy in recent years (the pandemic, quickly followed by the Russian invasion of Ukraine and soaring energy prices) has caused more economic uncertainty than the financial crash of 2008, according to a new study by the National Bank of Belgium (NBB).
Investors and economists have struggled to predict the direction of the eurozone economy over the past four years. European Central Bank president Christine Lagarde noted in June 2020 that the economic situation is "characterised by profound uncertainty" and that "looking into the future has rarely been harder."
An article published by the NBB on Thursday measures macroeconomic uncertainty in the euro area during different shock events, looking at the level of uncertainty for indicators of real economic activity, as well as uncertainty for factors relating to consumer and producer prices.
It found that on average, the share of highly uncertain variables are 6% for real economic activity and 8% in terms of consumer and producer prices.
During the great financial crash of 2007-2008 – which sent shockwaves through global financial institutions and triggered a credit crunch – the proportion of variables that were highly uncertain rose to more than a third in both categories.
However the article found that uncertainty spiked significantly more in recent years, reaching "new heights". The pandemic saw uncertainty in terms of real economic activity reach a high level in 93% of variables, while in the subsequent energy crisis consumer and producer prices were most affected, with 76% of variables reaching high uncertainty.
The NBB said that in the last four years, as uncertainty has "surged", economic forecasting has become "extremely challenging".
It noted that while uncertainty caused by Covid-19 and the energy crisis has retreated to an extent, the fogginess of the future economic picture "still remains well above" the historic average, "serving as evidence of the difficulty in making confident forecasts about economic variables".
The Belgian National Bank also highlighted that price uncertainty in Belgium is becoming increasingly linked to price uncertainty at a European level.
The NBB said that the tendency for Belgian and eurozone price uncertainty to move in a correlated manner has "increased over the recent crisis-filled years", as at December 2023 price uncertainty at both levels remains high.
