In my years as a professional economist, what kept me busy most often was preparing an economic forecast. Each quarter, my team and I would go through all of the variables of economic growth, plug them into an econometric program, and out would pop the forecast (it’s much more complicated than this in reality).
In each of those forecasts, we presented a LOW, MEDIUM, and HIGH case scenario. This reflected the factors difficult to assume: the price of commodities, currency fluctuations, etc. For the most part, though, we were fairly confident in the rest of our assumptions.
Then we’d apply some “judicious analysis” and assign percentage probabilities for each case. The medium-case scenario was always assigned something like 50%, or even 60% or 70%. The low and high cases were assigned much lower probabilities. Each time, senior management would look at only one number: the MEDIUM CASE scenario. This was the only one that mattered to them. After all, I told them this had a 70% chance of happening.
Fast forward to 2025 — not only has forecasting the economy become laughably difficult, it’s a waste of time. The reason for this isn’t because our math is bad, or the econometric models are faulty. It’s because the number of unknowables has skyrocketed. Anything could happen, and the probability of a Low, Medium or High case scenario is 33.3% each.
President Trump has been inaugurated, but a lot of questions lurk. Will tariffs be applied, or won’t they? And if so, how high? And for how long? Will tariffs, expulsion of illegal immigrants, and supply chain disruptions re-ignite US consumer inflation? And if so, does the Federal Reserve respond with higher rates? Does the President fire the Chairman of the Fed in response?
Will geopolitical tensions in Ukraine, Gaza, Sudan, and elsewhere continue? Does the US impose sanctions on Iran, driving up oil prices? Does China wiggle out of its economic slump? Or, to distract attention away from the economy, does XI Jinping invade Taiwan? And then what?
If anyone can answer these questions, please speak up. For now, all we have is guesses. And that’s a terrible foundation on which to build an economic forecast.
I’ve done extensive research on adapting to sudden, unforeseeable change. What are the characteristics of businesses and individuals that help them adjust more quickly? What traits help them navigate their way through the troubled waters of impossible-to-know economic conditions?
Developing these traits in advance of economic disruption is the key to survival in 2025. My presentations present a deep-dive into the traits. And I’ll be writing and posting about them on my social media feed in the coming months.
It all boils down to one strategy: STOP PREDICTING. START PREPARING.
Todd Hirsch is an internationally renowned economist, keynote speaker, and author whose research and work focuses on enhancing adaptability in an ever-changing world. Having had a front row seat to key issues transforming the global economy for the past 25 years, he delivers dynamic, clear-eyed talks on adaptability, creativity, and resilience to help industry and business leaders prepare for a future that is volatile, uncertain, complex, and ambiguous.
Contact us to learn more about Todd and how he can help ready your organization for whatever the future may bring.