We’ve recently looked at different ways to measure uncertainty in the U.S. economy. Today, we look at international data on economic and policy uncertainty. While U.S.-level data were measured by looking at what newspapers report, the international data are based on quarterly reports from the Economist Intelligence Unit in each country. Having a single source for each country means one must be careful in interpreting the data: It contains quite a bit of noise, and there may be some idiosyncrasies for each country that make cross-country comparisons difficult: A report may focus on one particular aspect of a country, or it may be related to uncertainties in other locations that may affect that country.
The GeoFRED map above covers the third quarter of 2019. The countries with the highest uncertainty are Ireland and the United Kingdom, no doubt due to the Brexit situation. But Switzerland also has a very high score, while Iraq and Pakistan enjoy perfect scores. And observations from other quarters change dramatically for some countries. This is where it’s important not to focus on a single data point, but to have a more holistic approach to the data.
The graph below shows a few things: The economic and policy uncertainty in the United Kingdom was not a fluke for that one quarter. The situation in Iraq is clearly not always that rosy, but it still regularly scores low, maybe because no change is expected. In Switzerland, where certainty is the norm, uncertainties are worth playing up.
As we implied earlier, there are some lessons to draw from the data taken as a whole. The authors of the data highlight in their report that this uncertainty index does usually foreshadow growth troubles. Democracies, likely due to their political process, have more uncertainties than authoritarian regimes. (Again: See Switzerland versus Iraq.) More developed economies also have fewer uncertainties to worry about.
How the map and the graph were created: The graph: From the World Uncertainty Index release table, click on the link to the individual country indices, select the relevant country, and click “Add to Graph.” The map: Look below the graph at the related content, click on the GeoFRED link, and zoom out to the desired focus.
Suggested by Christian Zimmermann.