After the chaos in the banking sector, many analysts seem to be convinced that global economy is heading for a recession, and few believe that this can be avoided, and the increase in interest rates will not affect the economy.

In the article about Economist talks about the “Mona Lisa effect” (Mona Lisa effect).

What is the Mona Lisa doing? At first glance, it seems that the protagonist of the most famous painting in the world is smiling. If you look again, this taunt will disappear. When he reappears, he is different. Leonardo da Vinci achieved this ambiguous effect using “sfumato”, where he blurred the lines around the Mona Lisa’s face. No matter how you look, you don’t understand what’s going on. The economy in the post-pandemic era is like the Mona Lisa. Every time you look you see something different” notes the weekly.

Forecasts are rarely more complex, writes The Economist. Last year, analysts’ range of expectations for quarterly U.S. GDP growth was twice that of 2019.uncertainty” appears more than 60 times in the International Monetary Fund’s latest global estimate, nearly double the number seen in April and October 2022 forecasts.

When the banking crisis hit a few weeks ago, no one had any idea how the Federal Reserve would move with interest rates—whether they were expected to rise, fall, or stay the same. At the European Central Bank’s closing monetary policy meeting last month, its president, Christine Lagarde, made clear the role of the institution she leads: “It is not possible at this point to determine what the future path is.”

Relevant departments are struggling to understand the full picture. They are trying to revise their estimates of everything from GDP to the unemployment rate, but “something has changed,” writes the Economist. GDP changes in the euro area are four times the norm. In March, the UK Statistics Office announced sweeping revisions that showed that real business investment is in line with pre-pandemic levels, rather than 8% lower than previously thought. Last month, the Australian Bureau of Statistics more than halved its estimate of labor productivity growth in the third quarter of 2022.

Three Reasons for Confusion

What’s going on; Maybe the world is just more unstable. In the past year, Europe experienced its biggest land war in seven decades, supply chain disruption, an energy crisis and a period of banking turmoil.

However, there are also deeper structural changes, which the British magazine summarizes in the next three.

The first one is related to problems caused by Covid-19. As lockdowns have come and gone, the global economy has gone from recession to boom and bust. This caused chaos in “seasonal adjustment”, which are common to most economic indicators.

The second is related to sample sizes. The pandemic has exacerbated a trend in which a large proportion of people refuse to answer official surveys and surveys.

The third reason for confusion has to do with difference between “hard” and “soft” data – that is, objective indicators, such as the unemployment rate, and subjective indicators, such as experts’ forecasts for the future.

Source: Economist.