Increasing global and domestic uncertainty

Global uncertainty has increased, according to the World Uncertainty Index (WUI), a measure that encompasses the situation in 143 countries.

It is not hard to identify the various sources of this heightened uncertainty. The continuing war in Ukraine, as well as the sanctions imposed in response to it, is one of them. The challenge that the pandemic continues to impose on the Chinese economy and, by extension, on global value chains, is another. Added to this are strong and to a certain extent surprising inflationary pressures. Prices are rising at a pace and with a degree of dissemination not seen in decades. This has resulted in additional uncertainty about how much and when monetary policy will need to be tightened, in virtually all countries, and how this will affect the level of activity. The prospect of recession is becoming increasingly likely in many economies.

Indeed, rising uncertainty has been a bad sign for global economic activity for some time. The WUI is based on quarterly data and higher uncertainty in the first quarter foreshadowed significant declines in world growth. According to the survey’s authors, the increase in uncertainty in the first quarter could be enough to reduce an- nual global growth by as much as 0.35 percentage points.

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