Measuring macroeconomic uncertainty in the euro area

Macroeconomic uncertainty in the euro area hit new heights as soon as the Covid-19 pandemic took hold, and during the energy crisis. Over the course of these two crises, measured uncertainty rose considerably and surpassed the peak seen during the 2007-2008 financial crisis. While the Covid-19 pandemic caused a high degree of unpredictability in economic activity, the energy crisis had a relatively greater impact on consumer and producer price uncertainty.

The article also notes that the increase in macroeconomic uncertainty in the euro area during the latter crisis was associated with price fluctuations in commodity markets. The findings suggest that recent inflation forecast errors in the projections produced by Eurosystem central banks could be partly attributable to this factor.

Lastly, the authors observe that price uncertainty in Belgium is closely linked to price uncertainty in the euro area, especially in times of crisis. Furthermore, in December 2023, price uncertainty in Belgium and the euro area remained high, underlining the ongoing challenge of forecasting inflation dynamics.