Amid prolonged uncertainty, ‘fragile recovery’ may be the new ‘cautious optimism’

GREEN shoots have finally emerged for Singapore’s key exports after a long winter, going by November data that showed a 1 per cent growth after 13 straight months of year-on-year contraction. Yet this prompted little cheeriness among keen-eyed analysts, who mostly stopped short of declaring that spring is here. Instead, they warned of downside risks and a “fragile recovery” ahead.

These days, that descriptor is applied to most economic indicators, whether global growth, trade or inflation. “Fragile recovery” seems like the new way of saying “cautious optimism”: a phrase that suggests better days ahead yet guards against false dawns, ultimately offering little certainty.

Indeed, a recovery can only be assumed if global macroeconomic circumstances stabilise and geopolitical tensions ease rather than escalate. But such “business as usual” conditions no longer seem usual. In an increasingly fragmented and fraught world, there is almost no telling how things will develop.

Economic forecasting seems to only be getting harder, given the number of misses over the past three years.

In 2021, as the world began to emerge from the Covid-19 pandemic, many economists assumed inflation would only be temporary. When this proved incorrect, they warned over and over that a global recession – or at least one in the US – would be imminent, given major central banks’ successive tightening moves to rein in inflation. Fortunately, that did not materialise either.

Economic forecasting has always been notoriously challenging. One thing that makes it harder today is the fact that the world is recovering from a once-in-a-century pandemic – which means it may not necessarily be useful to extrapolate from past data and business cycles.

Another factor is geopolitical instability, with the unthinkable often becoming reality. Decades after the last world war, few would have expected a major power to invade another sovereign country – yet the world saw Russia invade Ukraine in 2022, with all the attendant economic consequences.

With the world more interconnected than before, the impact of geopolitical instability on supply chains and global markets is likely magnified.

At the same time, it is challenging to determine just how bad things can actually get, even if one is aware of downside risks. The pausing of shipping routes on the Red Sea is a perfect example; few might have expected that Israel’s war in Gaza would affect global shipping.

Still, that is not to say we should give up on economic forecasting. As the late American economist Peter Bernstein said almost 40 years ago, forecasts should be taken seriously not necessarily because they will prove accurate, but because they are “are so much more useful than having no forecasts at all”.

The persistent uncertainty does explain why “fragile recovery” is the phrase du jour, as a safe prediction: offering a positive inclination, but without ruling out a turn for the worse.

What this means for businesses is that staying nimble and flexible – a key lesson from the Covid-19 pandemic – is more important than ever, and may be the key difference between thriving and tanking.

Michelle Lazarus, an education researcher from Monash University that helps organisations deal with uncertainty, said relying on predictions can result in binary thinking: the prediction is either right or wrong. Within the fog of uncertainty, however, a better way to determine the next step is to focus on asking “what if” questions.