Why the global economy is becoming ever more confusing

WHAT is Mona Lisa doing? At first glance, the subject of the world’s most famous painting seems to be smiling. Look again and her smile fades. When it next reappears, it is a different sort of smile. Leonardo da Vinci achieved this ambiguous effect with the use of “sfumato”, where he blurred the lines around Mona Lisa’s face. No matter how many times you look, you are unsure what is happening.

The post-pandemic economy is like the Mona Lisa. Each time you look, you see something different. Following chaos in the banking industry, many analysts are now convinced the world economy is heading for a “hard-landing” recession. Few seem to expect a “no-landing” scenario, in which the economy remains untroubled by rising interest rates – a fashionable opinion just weeks ago, and one which itself supplanted a common view in late 2022 that a mild recession was certain.

In short: Forecasting has rarely been harder. In the past year, the range of analysts’ expectations for American quarterly gross domestic product (GDP) growth has been twice as wide as in 2019. The word “uncertainty” appears more than 60 times in the IMF’s latest global outlook, about twice as many as in the April and October 2022 versions. When the banking panic struck, no one had the slightest idea what the Federal Reserve would then do with interest rates in March – some investors expected a rate rise, some no change, some a cut – and the next few meetings look equally unpredictable. At the European Central Bank’s latest monetary-policy meeting last month, Christine Lagarde, its president, was blunt about her institution’s role. “It is not possible to determine at this point in time what the path will be going forward,” she said.