![]() ![]() As the saying goes, ‘Prediction is very difficult, especially about the future’. In order to make these decisions, people have to form a view about what the future might look like. For example, firms make investments on the basis of expected demand for what they sell individuals make the decision to move house on the basis of expected wellbeing students invest in their education at least partly in the expectation of earning a higher wage when they get a job and investors direct funds to research into new products on the basis of the expected gains from innovation. Many economic decisions are made on the basis of expected outcomes. This research also indicates that anything that governments can do to reduce uncertainty – by making clear policy statements and by providing insurance – might help to mitigate these effects. This suggests that the economic effects of Covid-19 could be bigger and more persistent than the immediate disruption. What impact does all this uncertainty have on the economy? There is a large body of research evidence showing that increasing uncertainty has negative effects on the economy. For governments, there is a large increase in uncertainty about future revenue and spending requirements, as well as how people and firms will behave and what effects that will have on policy.For firms, there is uncertainty about who will buy their products, whether they can source essential inputs and what changes they will have to make to their workplaces to accommodate social distancing requirements.For individuals, there is uncertainty about their future work prospects, their incomes, the value of their savings and what they will be able to spend their money on.For how long will we have to continue with social distancing? What impact will social distancing have on our normally daily activities? Will a vaccine be discovered? Such questions create uncertainty for everyone: The Covid-19 pandemic and policy responses have led to a huge increase in economic uncertainty about the future.
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