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Editorial: Global Economic Uncertainty

Chennai, 1 Feb 2023:

The shocks that have shaken the global economy in recent years have introduced a new normal for turbulence, driven in some cases by political fragmentation between countries.

These episodes have also lifted uncertainty to exceptionally high levels, which in turn hurts economic growth.

In contrast to existing measure of economic policy uncertainty, two factors help improve the comparability of the World Uncertainty Index [WUI] across countries.

First: the WUI is based on a single source. This source has specific topic coverage – economic and political developments. Second, the Economist Intelligence Unit reports follow a standardised process and structure.

The process through which the Economist Intelligence Unit country reports are produced helps to mitigate concerns about the accuracy, ideological bias, and consistency of the WUI.

But we only have one Economist Intelligence Unit report per country per month, meaning there is potentially quite large sampling noise.

To better track the evolution of these conditions, World Uncertainty Index has been updated to show more frequent readings that are monthly, instead of quarterly, and incorporate data for 71 economies dating back to 2008.

As the index fell in December, the most recent reading, but has continued to hit elevated levels in recent times on the back of successive shocks, including most recently Russia’s invasion of Ukraine and the associated cost-of-living crisis.

Uncertainty jumped following the United Kingdom’s unexpected vote to leave the European Union—and soared even further after the surprise outcome of the 2016 presidential election in the United States.

This was followed by US trade tensions with China, which caused major uncertainty for the world.

Another big spike followed in early 2020 with the onset of the coronavirus pandemic, followed less than two years later by another shock from Russia’s invasion of Ukraine and renewed trade uncertainty associated with the risk of geoeconomic fragmentation.

The Global Economic Policy Uncertainty Index is a GDP-weighted average of national EPU indices for 20 countries: Australia, Brazil, Canada, Chile, China, France, Germany, Greece, India, Ireland, Italy, Japan, Mexico, the Netherlands, Russia, South Korea, Spain, Sweden, the United Kingdom, and the United States.

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