Uncertainty Mounts (Economic Outlook) (Global Economy ) (Report‪)‬

The main problems arising from last month's compound exogenous shocks--the Arab Spring and Japan's earthquake, tsunami, and nuclear-power disaster--are the effects we have not yet foreseen or understood. We know that the level of uncertainty confronting households, firms, and policymakers in the real economy and investors in the financial sector has risen sharply. And we know that a spike in uncertainty--while never a good thing for growth and efficient allocation of resources, not to mention for just getting on with life--is especially unwelcome when we are all hoping that the elevated uncertainties associated with the 2007-2008 financial crisis are largely behind us. The turbulence from the Middle East and North Africa as well as from Japan has elicited the usual rush of analysis from investors and stockbrokerage firms, especially those with established bets on global economic recovery. Investment banks tell us down to the decimal point what the negative impact of the earthquake and its aftermath will be on Japanese and global growth (not so bad!). Warren Buffett declares, "Japan may be a buying opportunity." The Barron's front page (March 21) cries, "Buy Japan." Meanwhile, JP Morgan, having already cut its US gross domestic product growth forecast for the entire first half of 2011 by a full percentage point, shortly before the earthquake and intensification of the Arab Spring, sees only a modest reduction in global growth and also a bounce in Japanese growth by the second half of this year.