Economists expected a recession but it didn’t happen. Now there’s uncertainty. Economists need to consider different scenarios and assign probabilities to them for 2024 forecasts.
Uncertain Economic Predictions
Around this time last year, the majority of economists and market analysts anticipated a recession for the US and global economy. Predictions included tighter monetary policy due to falling but persistent inflation, leading to a decline in stock markets and high bond yields. However, the opposite occurred, as inflation dropped more than expected, a recession was avoided, and stock markets rose while bond yields fell.
Scenarios for 2024
The current baseline for many economists is a soft landing, with advanced economies evading recession but experiencing below-potential growth and decreasing inflation. An upside scenario involves sustained growth above potential and less-than-anticipated inflation, while a downside scenario predicts a brief recession causing even lower inflation. Despite the uncertainty, the approach to forecasting for 2024 remains the same: establishing a baseline, upside, and downside scenario while assigning probabilities to each.
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